Golden Star Resources Ltd.
Q4 2015 Earnings Call Transcript

Published: 24 Feb 2016

[Operator:]

Good morning everyone and thank you for joining us to discuss Golden Star Resources' Fourth Quarter and Full Year Financial Results. The financial statements were filed this morning and these are available on CEDAR as well as 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, please go ahead.

[Sam Coetzer:]

Thank you, Chris. Thank you, good morning everyone. Before I introduce, joining me today, I'd like to welcome Lisa Doddridge, Vice President Investor Relations on Corporate Affairs, she is a member of the Executive Team. Also joining me today are my colleagues, Andre van Niekerk, our Chief Financial Officer; and Daniel Owiredu all the way from Ghana, really instrumental in bringing our cost down. Thanks Danny for being here. I also want to recognize the rest of my executive, who is not on this call today, for their tremendous effort, and particularly I want to thank Karen Walsh and Dr. Martin Raffield, Mitch Wasel and Bruce Higson-Smith. The fourth quarter results as we will be discussing today reflect an important milestone to this company's transformation and its future state. Our recent history, trends and results underscore how and what we are set out to do supplement 2013. Today I'm not only relieved but I'm immensely proud of what this team has achieved over a very trying and difficult time. Today I want to give recognition to so many different people. Firstly, to the whole Golden Star Team for their resolve in following our vision. I mean shoulders for their patience, our communities for their support, and our lenders, investors, and suppliers for their cooperation during this transformation. What you will see today is the foundation of a new momentum going forward. Our projects are well underway now and our new cost base has been established. We have gone from advancing initiatives to delivering projects. Our challenges and risks are now manageable, and we are seeing daylight between cost and revenue emerging. Please now join me listening to the results of the new base that had been established. Since 2013 Golden Star has had a consistent mission and vision that was favoring operating margin over total ounces produced. Leveraging our existing infrastructure and our extensive experience. Reducing cost through behavioral change from production enhancement and disciplined focus on return on capital. This vision remains intact going forward. Carrying the results for 2015 in the fourth quarter, you will notice the continued improvement. The execution of strategy enabled the generation of cash flow enhanced by the streaming agreement that we reached last year. We've generated $0.21 per share in 2015 cash flow before changes in working capital which includes relevant sales generated in the quarter. We had revenues of over $255 million for the year and in the fourth quarter, $56 million for the quarter. At the year-end we reported a cash balance of $35 million with additional funds available that are expected to fully fund our development projects into the future, into production. Looking at the operational performance, we sold over 220,000 ounces for the year, and just under 52,000 ounces for the quarter which was very similar to the third quarter. As part of the transition to low cost production, the refractory operation was successfully suspended in the third quarter. This lead to significantly lower cost in the fourth quarter that are more representative of the cost structure that we expect going forward. In the fourth quarter, cash operating cost declined by 28% from the third quarter to $715 an ounce, and our rolling sustaining cost declined almost as much to just below $900 an ounce. To me this is a great indicator of the future state of Golden Star. To look more closely at our cost, from the slide you will see that cost again declined again quarter-over-quarter. This decline is largely a result of the suspension of the higher cost refractory operation. The cost reduction is sustainable and better represent the future production profile. Although 2016 indicates slightly higher cost than our fourth quarter due to several activities associated with the development of our two underground operations. A good example of this is the upgrade of the mine foundation at Wassa that was scheduled for the second quarter. Reviewing each of the operations, it's clear that improvements were made in all areas. Comp sales at Wassa increased by 7% from the fourth quarter, however the full year's comp sales declined slightly. We're seeing improvement in grades quarter-on-quarter recovery room and the save, and we have stabilized the open pits going forward. Over the year we've seen significant improvement in our cost at Wassa. Cost have declined by 44% from the first quarter to the fourth quarter, while full year cost declined by 14% year-over-year to $838 per ounce which is now the lowest in five years. In 2016 we expect production of 100,000 to 110,000 ounces at costs which are consistent with last year. We expect Wassa underground to start production in the second half delivering between 20,000 and 25,000 ounces. At our Prestea operations which is now being in production for just over five months, results are stabilizing and its meeting or exceeding our expectations in so many different areas. Q4 now provides a benchmark for the non-refractory production from Prestea. Received significant improvement in our grades and recoveries. The ton each mine processed have increased for non-refractory material and we start expect production to be somewhere between 60,000 and 70,000 ounces on Prestea. Again, we may take a closer look at the cost of Prestea you can see the improvement. Cost have declined 33% from the third quarter to the fourth quarter, really the resultant is because of the suspension of the refractory business. Our fourth quarter cost are also reflected, reflection, and our expectation going forward. 2016 we expect cash cars to be in range of $840 to $970 per ounce. Last night we also released our mineral reserves and mineral resource to statement, and I like to briefly discuss these results. Our total mineral reserves have increased by 10%. I should mention we are no longer carrying any refractory ounces in our reserves, and if you compare only the non-refractory ounces the increase was over 20%. Grades increase significantly by 34% and tarnish has also increased. Our total mineral resource increased more modestly, however they included 10% in resource at Wassa underground and an increase in the Prestea average grade to 15.5 grams per ton. Our expectation of 2016 is as follows; total production of between 180,000 to 205,000 ounces, for the year the cash operating cost between $815 and $925 an ounce. We expect $90 million in capital spending including approximately $80 million in development and $10 million in sustaining capital. This is unchanged from the guidance we relieved earlier this year. Looking forward to the transformed Golden Star, our pro forma indicates a potential increase of 25% to the current production levels. There is additional opportunity to further increase future production levels with a continued resource growth from mine life extension, specifically at the Prestea open pit and the F Shoot at Wassa. I'll now take some time to review our development projects and provide an update. In 2016 we will continue to realize our strategy of lower cost production as we expect the Wassa underground to begin production later in the year. To review the project, in March 2015 we announced the positive results of a feasibility study, feasibility that we studied at the Wassa operation, as a combined open pit and underground operation. The study determined the annual production for the combined operation would average 160,000 ounces which includes an average contribution from the underground of just under 100,000 ounces. The study estimated average operating cost to be $780 an ounce and rolling cost of just under $940 an ounce. The feasibility study indicated initial project capital of $56 million which declines to $39 million when taking into account the revenue generated by approximately 22,000 ounces of pre-commercial production. In 2014 and 2015 we spent a little over $22 million. In 2016 we expect to spend $34 million, and when net that against the revenue from the answers expected in the year it declines to approximately $17 million. Development of the mine and utilization declines continues favorably, and to date we've done approximately 1,260 meters. Also, the infrastructure and construction has been completed with an additional opportunity at Wassa underground. The feasibility production schedule was only based from the B Shoot, and with the discovery of the F Shoot it could further enhance the production once the zone is better defined and better understood, and we'll update you in the years that will continue. Drilling will now be conducted south of the known high grade mineralization. The Prestea underground is a high grade underground project which is now in development. The study estimates an average annual production of 80,000 ounces from the underground with a cost of approximately $146 an ounce, $460 an ounce and the only sustaining cost of just over $600 an ounce. The total capital estimated was $75 million and is reduced to $63 million when you take into account the pre-commercial production of approximately 12,000 ounces. In 2016 we expect to spend $36 million as indicated in our recent guidance. Remain on track in spending and to deliver production on time. Give you a quick update on the progress of this project. Rehabilitation works expected to be completed in the first quarter and this is on schedule. Mechanical and electrical work to be completed by the third quarter. Development to commence once the mechanical and electrical work is completed. Pre-development of the mineral resource to begin in the fourth quarter 2016, and we're hoping to commence by mid-2017, ramping up 500 tons per day by end of 2017. In the year ahead we will remain focused on the following; expanded margins to generate stronger cash flow leveraging our existing infrastructure, geographic knowledge and long corporate history, reducing cost by pursuing low cost ounces. And we will continue our disciplined focus of return on capital and prudent balance sheet improvement. With that, I'd like to thank you all for listening in today, and we'll now ask the operator to open the line for questions. Thank you, Chris.

[Operator:]

Thank you, ladies and gentleman. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Raj Ray, National Bank. Raj, please go ahead. Raj, your line is open.

[Raj Ray:]

Sam, can you hear me?

[Sam Coetzer:]

Yes. Hi, Raj. [Cross Talks].

[Raj Ray:]

Yes, two questions here Sam. There is a good cost reduction in the Q4. So I was wondering if you can give us some idea about what the per ton cost at Wassa is going to be going forward? And if you do have a breakdown of the mining operating and the G&A cost.

[Sam Coetzer:]

Right, I'll hand that over to the man who has done that which is Daniel Owiredu, and it's not one single area but yes the cost reductions at Wassa has been really stellar. Daniel, I don't know if you want to shed some light how you go about every quarter reducing the cost at Wassa.

[Daniel Owiredu:]

Raj, thank you. The team is very focused and cost reduction has come across in all the areas. It's been a combination or reduction in G&A, productivity enhancements in mining and cost reduction as well as the processing, as well cost reductions in the processing area in terms of efficiency then again reductions, and improvement that we brought in terms of changing some of the thickness and other things we put in the plant.

[Sam Coetzer:]

Yes, I think it's important that part of this is also by design, Raj, as Danny indicated in the third quarter, end of the third quarter, we did install a new cyclone van that allows us to operate the plant cheaper because you don't have a double grind. We're looking at trucking use, we'll have less trucks versus our, with our excavators. We're looking at putting more focus on the people and the day-to-day planning and a lot of things that we just do. So, it's not one particular area. The whole company is restructuring in terms of its cost management and getting to a base that we believe is the right level of cost for this company, but we didn't do it overnight. And as you see, this is a gradual process, one that is sustainable into the future. We don't just flush it, we do it with the people. They come up with areas in a regular strategy sessions and how to reduce it. Your second question was what is the G&A, is that your question?

[Raj Ray:]

Yes. I mean, if you have a breakdown of the different cost on a per ton basis in term of mining...

[Sam Coetzer:]

Yes, I can give you roughly where we are, we're trying to beat that, it's about $4 a ton for Wassa in terms of G&A. And we're looking at our mining cost for the open pit of that to $70 in that range. We'd reduced below that. We're actually running below that cost per ton, but that's what I'm targeting as a stabled number. Our processing cost, we've now reduced it from previous, a year ago, being about $17, $18, as high as $20 per ton. We're now looking at reaching $15.50, and we've been doing that fairly regularly in the last quarter. So, it's not one area, again, I believe that you just obtained one area. The company is in total transition in terms of sophistication planning and reaching a vision that we believe can be attained. We're also using more local management that has reduced our cost. We have a fantastic team, a team that is in tune of what they need to achieve. So, Raj, it's hard to give you just one single area.

[Raj Ray:]

No, I get that. So with the improvements you've put in place, do you think you can sustain this cost over the next or two?

[Sam Coetzer:]

If Dan would admit I guess he knows that I believe we still have more to be done, and it's not a question now of making people work harder. We have an ability to leverage certain of our internal activities even better and communicate better and have some stronger systems that we never in the past had money to invest in in terms of areas of productivity gains, and how you schedule your track scenario to start and stop, and how do you refuel, and how you do maintenance. So I do believe we, Wassa specifically, can see some more upside and that's what we're focusing on.

[Raj Ray:]

Okay, thanks Sam. The next question is on the strip ratio at Wassa, and I remember when you published the technical report, has there been any changes in the mine plan going forward? Can we see, do we expect a lower strip ratio for 2016 and 2017, and there was now a general technical plan?

[Sam Coetzer:]

No, a lot of my plan is really not changed at all. We remain what you seen, we've published in the past, it's very similar. What we are looking at is maybe the portion of the underground, depending on what we see at F Shoot. We will update you on that and see, obviously it will be a ratio but if due replace higher grade tons for better margin from an underground ton. So what we are now working on the next two quarters is truly understand what can the underground, in terms of a margin contribution. And do we slow the open pit down if that margin is better, and that will be dependent of the excitement that we see from the F Shoot as the development has already passed the initial start, and we're on our way to the B Shoot, and when you pick that up as a bonus. So, Raj, it's fluid and we're working into enhancing our plans constantly.

[Raj Ray:]

Okay, thanks Sam. One last question. I think it's more for, probably Andre, but does the all-in sustaining cost guidance you provided, does it include the cost of the streaming agreement?

[Andre van Niekerk:]

Hi, Raj. No it does not include the cost of the streaming agreement.

[Raj Ray:]

Okay. So what will be the cost of the underground basis if you were to include the stream?

[Andre van Niekerk:]

So that depends on gold price, and I think we're looking at around $70 an ounce at $1,200 gold price.

[Raj Ray:]

Okay.

[Andre van Niekerk:]

Well I can give you a better number later, this is approximately.

[Raj Ray:]

Okay. That's it for me. Thanks Sam, Andre and Daniel.

[Sam Coetzer:]

Okay, Raj.

[Operator:]

[Operator Instructions] There are no further questions at this time. I will now turn it back to Sam Coetzer for closing remarks.

[Sam Coetzer:]

Thank you Chris. I'm sure there is an indication that people truly understand what we've been doing. So I just wanted to thank you all for joining us today and I hope you are as excited as we are about the future of Golden Star. And now that we've crossed the inflection point of the acquisition, I'm sure you're going to see better from us. Thank you and have a great day, and we'll talk to you soon.

[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.