Golden Star Resources Ltd.
Q4 2012 Earnings Call Transcript

Published: 5 Mar 2013

[Operator:]

Greetings. Welcome to the Golden Star Resources Fourth Quarter and Year-end 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Please note that this call contains forward-looking information. Please refer to the company's statements regarding forward-looking information in the company's Form 10-K, filed March 4, 2013. The call will now begin. It is now my pleasure to introduce Belinda Labatte, Investor Relations representative for Golden Star Resources. Thank you, Ms. Labatte, you may now begin.

[Belinda Labatte:]

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Golden Star Resources fourth quarter 2012 and year-end financial results and operational update today. Yesterday, we filed our financial statements. That means, they're available on EDGAR and SEDAR and are filed on the company's website at www.gsr.com. Joining me on the call today is Sam Coetzer, President and CEO; Jeff Swinoga, Executive Vice President and Chief Financial Officer; and Daniel Owiredu, Executive Vice President, Operations. Sam and Jeff will provide a brief overview of the company's strategy going into 2013, the 2012 financial highlights and also the 2013 capital plan. We will then open the call to questions from analysts and investors. Sam?

[Samuel T. Coetzer:]

Good morning, all, and thank you for joining us this morning. I'm pleased to discuss the financial highlights for our year ended 2012, along with our strategy for 2013 and going forward. I will then hand the call to our CFO, Jeff Swinoga, for details on changes in our financial condition and capital plan going into 2013. Also on the line today is Daniel Owiredu, who can answer questions on our operations in Ghana; and Bruce Higson-Smith. Let me begin by giving you direction on where we are taking Golden Star and how the 2012 year is setting us up for growth ahead. We have a new management team in place, and we are now established in Toronto, from where we are calling you today. Tim Baker taking on the new role of Executive Chairman is also a significant and positive change at the board level, indicating the level of renewal of Golden Star's direction and region. With our newly established headquarters in Toronto, Golden Star is taking many steps to reposition the company for future sustainable and profitable growth. 2012 was a defining year for Golden Star and sets the stage for change. In Ghana, productions and costs met or exceeded budget at just over 331,000 ounces of gold sold at consolidated cash operating cost of $1,033 per ounce, below the 2012 guidance of $1,040 to $1,100 per ounce, and meeting our target guidance range for the year. Operating cash flows increased significantly, which has sustained our strong cash position of $78.9 million and represent a track record of 6 consecutive quarters of positive cash flow from operations and positions us extremely well to meet our capital priorities. On a per-share basis, we saw our operating cash flow per share increase to $0.36 per share from $0.09 in the previous year. Net loss on earnings per share of $0.04 per share this year primarily due to the mark-to-market noncash loss on our new 5% convertible debentures. So we met or exceeded our internal targets for production, cash costs, and we continue to generate stable operating income. We also completed the operational improvements that you've heard me discuss in previous calls. The refurbishment of the oxide plant, unlocking of synergies between the 2 operations and starting up the Pampe pit within the Bogoso/Prestea non-refractory operations. We will now be looking to unlock value by focusing on reducing costs on a consolidated basis. A note on the Dumasi Pit, Bogoso operations, as we have just released this morning, we are pleased to have signed negotiated resettlement agreement with the Dumasi community, which will allow us to commence the relocation process. This relocation has funds earmarked at $15 million for 2013 and will allow us to process the 1-million-ounce orebody. Our priorities for 2013 are to deliver, unlock and ultimately sustain value. The company will unlock value by shifting production to lower cost per ounce through our non-refractory operations. The company is in the fortunate position to own 3 processing plants within a 40-kilometer radius, shown here on the slide, and coupled this with a large ownership on a very prolific gold belt with various targets to mine, we believe we can optimize our supply into these plants. The company, between Wassa and Bogoso, has a current capacity to process 4.5 million tonnes per annum of non-refractory ore and 2.7 million tonnes per annum of refractory ore. Our efforts to explore for and develop future targets will be focused on creating throughput into the non-refractory processing plant. Lean oxide operations are expected to enable margin expansion as of the midterm. This overall goal has 3 areas of focus to ensure margin expansion, including

[Jeffrey A. Swinoga:]

Thank you, Sam. I want to say good morning to all of our analysts and investors on the call. Having just joined this company in January, I want to say I'm very excited to be working with Sam and the team at Golden Star. Today, I will review major items and changes in our revenue, cost, net income, cash flow, CapEx and financial conditions. Our fourth quarter revenue increased to $150 million from $119 million for the same quarter last year. For 2012, gold revenues increased $80 million to $550 million as compared to $471 million in 2011. The revenue improvement for both the fourth quarter and 2012 was a result of more gold ounces sold and higher gold prices than in the previous year. The company sold more ounces due to the restart of the Bogoso non-refractory processing plant in 2012, which contributed an additional 38,000 ounces to gold sales. Our realized gold prices were also higher and averaged $1,663 per ounce during 2012, up 6% from $1,564 per ounce last year. Cash operating cost totaled $342 million in 2012, up 5% from $320 million in 2011. This cost increase was primarily from the restart of Bogoso's non-refractory plant in 2012 after significant operational improvements were completed. In addition, we saw higher prices for various key operating inputs during the year, including electricity, fuel, cyanide, lime, grinding media and drilling costs. Higher total operating costs also reflect an increase in waste mining activities at Wassa in 2012. Now looking at our operating cash cost per ounce. For the year, cash cost at Wassa -- at the Wassa operation was $896 per ounce and Bogoso's was $1,160 per ounce. This yielded a combined cash operating cost of $1,033 versus $1,062 per ounce last year. As Sam mentioned, the reduction of cash operating cost is a key area of focus for the company and is achievable through a number of operational improvements. These include, integrated and shared management resources in Ghana and shared infrastructure, improvements in supply chain management and corporate cost reductions. Now looking at other variances. Our depreciation in 2012 was $27 million higher this year due to more ounces being produced at Bogoso, as well as more ounces produced from mines with higher depreciation charges. Exploration expenses were lower than a year earlier, reflecting slightly lower exploration budgets. Corporate, general and administrative expenses were lower as the company significantly reduced consulting costs in 2012 from 2011, which was partially offset by additional costs associated with the move to Toronto of the head office. In 2011, the company had derivative losses that were primarily related to gold hedging. We had no gold hedged in 2012, and therefore, had no derivative losses. In 2013, we remain unhedged. In 2012, we issued $78 million of a 5% convertible debenture and reduced our debt by $48 million. As the price of our common shares increased, reaching $1.84 per share by the end of 2012, this resulted in a $28 million noncash or non-realized mark-to-market loss from these convertible debentures. The $32 million gain on sale of investments is related to the sale of 2 of our exploration properties during 2012

[Samuel T. Coetzer:]

Thank you, Jeff. Let me put in summary, again, 2013 main objectives. And they are

[Operator:]

[Operator Instructions] Our first question is from the line of Kevin Chiu with CIBC.

[Cosmos Chiu:]

Just had a question with regards to -- I guess, I'm looking at your 2013 operational objectives and kind of reconciling it to your capital expenditures for the year. I was just wondering, in terms of the spending plan, how much of this is actually dependent on, I guess, the progress of the permitting. And perhaps, if you could kind of remind us of what some of this permitting kind of entails.

[Samuel T. Coetzer:]

Kevin, great question. Obviously, the big price tag this year is Dumasi, and having just signed -- the press release that you saw this morning, just reached a negotiation with the community, we believe that we're now on track with that permit. And we should be able to move that rapidly forward. That has been very important for us. So that permit -- or that spending will be real for us going forward. We've already -- just to give you an indication, we're already on the property now. We've got some equipment in, and we've started the land clearing. The other one, which would be the Mampon permitting, we are working with the EPA. We have all the documentation completed. We also have a mine plan that we can present to the EPA, which is important. And lastly, with the Prestea South projects, the exciting part there is that we have reached an agreement and signed 3 agreements with the Prestea community. And really, Kevin, this comes on the back of our ability to move the Prestea Underground forward. And having received the underground permits at Prestea Underground really bodes well with the projects I've always wanted to unlock over the last 18 months to get us more into the non-refractory business. This is now being realized, so we are focusing on bringing in those projects into the non-refractory plan. So Kevin, I hope that answers your question.

[Cosmos Chiu:]

Yes. And I guess just in terms of the development spending, I was wondering if you could give us a sense of how much do these kind of -- these numbers represent the total development cost for these assets.

[Samuel T. Coetzer:]

So we indicated we have to increase the Wassa tailings facility, and we have about $5 million of the $15 million that we want to spend on that, the [indiscernible] on that range. And then, the other one is the $26 million in terms of the Prestea Underground. We have some discretionary in terms of the speed in which we can spend that, depending on how we see the gold price moving forward this year. So we currently see a gap, and I can just maybe elaborate, a gap of about $10 million to $12 million from what we have in cash balances and what we see in terms of what we want to achieve. And we will be looking at maybe enough facility to take us through this year. The critical importance for me is to ensure that we finalize the drilling at Wassa and then complete the feasibility at Prestea Underground because that will indicate to me very clearly the IRRs that we are going to drive and make our decision on the capital spend. Jeff, did you want to add anything to that?

[Jeffrey A. Swinoga:]

Sure. Maybe just, as you mentioned, Sam, we take things on a year-by-year basis, so we're really focused on pursuing our objectives, as Sam highlighted, in 2013. And with respect to funding, we're going to look at the projects as they progress, and we're all very excited over the prospects that we have and the amount of opportunities that are presented to the company. So we're using operating cash flow to fund, of course, and our cash balance to fund sustaining capital, and development capital is somewhat discretionary. So depending on metal prices, depending on where we are, we may put in additional debt funding to enhance and pursue our growth objectives. So...

[Samuel T. Coetzer:]

Anything else on that, Kevin?

[Cosmos Chiu:]

Just, I guess, maybe on the Prestea Underground. You guys have allocated the $26 million for development. I recall from the PEA that there was a capital cost associated with it of $115 million. So should I be basically subtracting the $26 million out of the $115 million?

[Samuel T. Coetzer:]

Yes, the $26 million would be part of that. So what we -- having received that permit, that mining permit, Kevin, and we -- what we see -- the feasibility is not completed, but what we've seen in terms of process moving forward, we want to move into rehabilitating the shafts, some of the infrastructure that is in there in 17 level and other levels. So -- because what it could do is we would then consider whether we do need a decline from surface. With these permits, we can actually utilize the current infrastructure much better. And for that reason that we want to get an early start into this opportunity.

[Operator:]

[Operator Instructions] Our next question is from the line of Paolo Lostritto of National Bank Financial.

[Paolo Lostritto:]

So first question, I think Jeff touched on it, and I don't know if it was just a function of my line, but I don't know if it was clear. Dumasi, you're expecting that to kick in 2015. Did I hear that correctly?

[Samuel T. Coetzer:]

That's correct, yes. We have 2015, the date currently earmarked to start with the mining, the first, but we will start relocating immediately. Currently now that we have the resettlement agreement signed, we will get traction forward. So yes, Paolo, we've earmarked that. If we can do it quickly, we will.

[Paolo Lostritto:]

Okay. And then, in terms of current sources of oxide ore over at Bogoso, can you give us a sense of just a part of the oxide caps and the pushback? Where else are you sourcing the oxide ore?

[Samuel T. Coetzer:]

First, Paolo, I think you understand it well, but I'm going to say it again. The reason why the oxide plant is so important, mining those caps off assist with the strip of the refractory ore that we're putting into that plant. So we always, we always take the Bogoso cap and the Bogoso ores has some upsides in, and Pampe is currently also an additional adding to the upside. What we haven't put in is any early ore that we can get from Prestea Underground now that we have the permit. But you're right that, basically, for this year, we have Pampe and Bogoso North as the main sources for oxide. There's a little bit at Chujah, but not much. So yes, those are the sources. And then, we will be moving in trying to get the Dumasi and get -- next year, looking at bringing in Prestea South projects towards the latter part of next year.

[Paolo Lostritto:]

And I know this is kind of part and parcel with the feasibility for Prestea Underground, but with spending $26 million possibly this year, how soon do you think you could start teaspooning some of that high grade from Prestea Underground? Call it -- are we looking 18 months, if the infrastructure is somewhat half decent condition?

[Samuel T. Coetzer:]

Well, we have the ability to go into the upper levels. What we've done now, we've got a bulk sample out of that mine. And so I don't want to put this into any of our predictions currently. We're doing full metallurgical review of the ore that is available in the upper levels. But my focus would be now, Paolo, is make sure I have those shaft infrastructures dealt with, get a decent pumping system, get the ventilation. And so once we want to develop the waste strip that we're ready to do that. But I can add that we have a bulk sample, a fair size sample out of that mine right now. But we're doing full metallurgical testing on that ore because it's from the upper levels, and that is oxidized over the period.

[Paolo Lostritto:]

It's offering you some flexibility there?

[Samuel T. Coetzer:]

Yes, it is offering. But I don't want to put that in right now, Paolo. So we signed on a third mining engineer to work with Martin Raffield and Dan on that. And what we want to look at is if there's any opportunity, nothing -- I don't want to say there is or there isn't, but we have taken some ore out of that mine now.

[Paolo Lostritto:]

Okay. And then, on the oxide plant, during the quarter, the recovery was a little bit lower. Is that just a function of doing some maintenance in ramping the plant back up? Or is there more to it than that?

[Samuel T. Coetzer:]

Yes, the first few quarters weren't that well. We took -- made the decision to start the oxide plant. I knew it would have a positive impact on the company. We had some seeping problems in the plant. We didn't have a gravity circuit in the beginning. In the fourth quarter, we had the gravity circuit running off the table. We're seeing about 35% of the gold coming off that table. So things are ramping up. Our focus now is to -- as I said earlier, I've got 4.5 million tonnes of installed non-refractory capacity, and our focus is to look at everything in terms of getting the best recovery and the best tonnage throughput on that. And that's where I'm focusing on that raw -- we know what the 2.7 million tonnes of refractory plant does, so the focus is, really for me, is to get that 4.5 million tonnes per annum fall between Wassa and Bogoso.

[Paolo Lostritto:]

Got it, okay. Last question, maybe towards Jeff. Do you guys -- are you guys giving kind of a range for company -- corporate, G&A and DD&A for the year for 2013?

[Jeffrey A. Swinoga:]

For 2013, it probably will be -- probably somewhat similar to what we had in 2012. We did have some onetime charges associated with the head office move in 2012. So if you look at the net reduction of that, however, you have to also add in the move to Toronto, so there'll be some additional G&A costs associated with that. So...

[Paolo Lostritto:]

So call it $20 million in G&A and $95 million in depreciation?

[Jeffrey A. Swinoga:]

Well, yes. I'd say roughly around 20 -- where we were last year for G&A is probably a good estimate. We expect it to come down, and we will strive to bring that down further. But there will be some head office move cost that we've got to reflect. In terms of depreciation charges, I think you're asking about that, Paolo?

[Paolo Lostritto:]

Yes.

[Jeffrey A. Swinoga:]

It will be similar to what we had in 2012, in the same range, about $90 million, $90-ish million.

[Paolo Lostritto:]

I think, back of the envelope, it's about $100 million, so $95 million to $100 million.

[Jeffrey A. Swinoga:]

That sounds good.

[Operator:]

[Operator Instructions] The next question is from the line of Andrew Breichmanas of BMO Capital Markets.

[Andrew Breichmanas:]

Just a quick question on Dumasi. So $15 million in development capital this year and production in 2015, so what's the overall budget for resettlement, relocation and pre-strip associated with that pit?

[Samuel T. Coetzer:]

Do you want to take it all the way back? On the money we spent -- I think we spent about $8 million, $9 million to date, another $15 million -- we'll probably see another $15 million in the next year to finalize that, between $15 million and $20 million.

[Andrew Breichmanas:]

Okay. And I guess, just one of the trends in terms of companies providing guidance, I guess, is to look at all-in cost numbers. And I was just wondering if you either had a sense of what you're all-in cost on sort of the same sort of basis were this year and whether you had any sort of target for that in the longer term.

[Samuel T. Coetzer:]

Yes, Andrew, everybody's talking about that I had actually on all the conferences I've been lately. And we're looking at it, yes, we are. What -- the last year and maybe this year I would not think is representative of our costs going forward. So I don't have a verifiable or a decent number that will be consistent going forward. However, we are going to work on that. We're looking at the standard. We're looking at the standard that everybody is using. So I hope that by the next quarter that we would be able to give a direction of what will represent Golden Star going forward. But 2012, in terms of the production, the way that we spend to grow the company, would not be representative. What we have done over the last 18 months, we've got a head start on many, as we managed cash, as you guys know. We have managed cash has been the critical component and what we want to do is increase those margins and increase our cash position. So yes, we don't have one for today, Andrew, but we are reviewing the right standards that has been put out. And I hope to soon be able to give a number in that direction.

[Operator:]

Mr. Coetzer, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

[Samuel T. Coetzer:]

Thank you, operator. And again, thank you, everybody, for joining us on our quarterly conference call. Just as a reminder, our approach to shifting our resources to achieve lower operating cost is guiding our capital decisions, and we are pleased to have ended 2012 with a sound financial position. I wish our callers a great day and also, a successful PDAC conference. Thank you, everybody.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.