Golden Star Resources Ltd.
Q1 2014 Earnings Call Transcript

Published: 7 May 2014

[Operator:]

Good morning, everyone, and thank you for joining us to discuss Golden Star Resources First Quarter 2014 Financial Results and Operational Update. The financial statements were filed this morning, and these are available on the company's website at www.gsr.com. On the call today is Sam Coetzer, President and CEO; André Van Niekerk, Executive Vice President and Chief Financial Officer; Daniel Owiredu, Executive Vice President and Chief Operating Officer; and Martin Raffield, Senior Vice President Technical Services. Today, management will discuss the financial results for the first quarter 2014 and provide an update on operations. Please, also note the forward-looking statement and legal disclaimer on the webcast presentation.

[Samuel T. Coetzer:]

Well, thank you, Shannon, and good morning, everyone, and thank you for joining us today. And to start, I would want to state that we've achieved everything we set out to do in the first quarter. As I stated on previous calls, we expected that this quarter would be a softer quarter than our previous quarters. During the first quarter of 2014, we made changes which have put us on the path to lower cost production. We remain on target to achieve our production, cost, and CapEx guidance for the year. I am satisfied with what we've achieved from an operational perspective during the last quarter. But we know we can do better going forward. Drilling at Wassa continues to yield significant results, and the PEA for underground mining at Wassa remains important to us. We have now established mining at the expanded Wassa Main pit, and early indications are that we are achieving better than expected productivity from the larger mobile fleet, which will result in lower mining costs into the future. At Bogoso, the betterment stripping is almost complete, and we have started standing down excess equipment, which will lead to the lowering of mining costs going forward. During the first quarter, we were not yet into the main higher grades on, but we expect to be there within this month. At Bogoso, the refractory plant has achieved higher than expected throughput, indicating that the investments we've made over the last few years are delivering results, and that the higher production forecast for the remainder of this year will be achievable. Reviewing our financial results for the quarter. First, we remain on target to achieve production guidance of 295,000 to 320,000 ounces of gold in 2014. Revenues decreased to $85 million for the first quarter, down from $96 million in the fourth quarter of 2013 as fewer ounces of gold were sold. [indiscernible] ME [ph], the trend of reducing cost of sales has continued into the quarter with MEs [ph] decreasing to $83 million from $85 million in the fourth quarter last year. Consolidated cash balance at the end of the quarter was about $58 million, and we have $10 million ungrown on the Ecobank facility. As we stated before, the low ounces produced was the main reason for the lower revenue generated in the quarter. From an operational perspective, there were very few negative surprises in the way the mines performed, and we were in line with our mine plan. Bogoso achieved the required production rates in the pit and in the processing facility. Towards the end of the quarter our stripping reduced. We were able to decrease the amount of mining equipment in operation. Verified [ph] drilling contractors is also on the decline as the blocking rate will reduce going forward. Both of these will contribute to lower costs in the remainder of the year. The tailings retreatment [ph] facility continues to operate at expected levels. At Wassa, production in the main pit has stabilized, and we are very pleased to see the productivity gains we have achieved. All 3 of plants are running at near for full capacity. We anticipate grade to improve going forward. I'm extremely happy with the team's performance on cost containment and cost management. The results of the [indiscernible] we continue to see a reduction in cost of sales. The main drivers for the lower operating expenses are productivity gains, reduction in tonnage mined, and fewer contractors. We anticipate further cost reductions going forward. As you can see from this graph, cost of sales has reduced about 8% over the last 3 quarters as we expect the rate of recoveries to increase at Bogoso and productivity to improve at Wassa. More ounces produced at lower costs will have a desired impact of improving our profitability. Cash operating costs per ounce was higher than previous quarters due to the lower ounces produced, which is a function of the lower grade ore that was processed during the quarter. Golden Star has recently commenced mining the higher-grade ore in both Chujah and Bogoso prospects [ph]. At Bogoso, we expect the grade [indiscernible] to increase about 2.5 grams a ton compared to the 1.8 gram a ton in the last quarter. The higher grade and threshold should also have a positive impact on the recoveries going forward. In light of this, we retain our guidance for the full year. Wassa mine operating expense reduced by $5 million to $34.1 million as mining productivity improved. [indiscernible] and plant operating costs reduced. I've been pleased with the performance of this operation and a seamless transition into the new mine plan. It's never an easy activity to change operating parameters, yet our planning and preparations have allowed us to get into our stride within 4 weeks of the transition. The addition of a larger fleet from Bogoso to Wassa made a remarkable difference to the mining productivity, and the early indications are that this will continue to improve. It should be noted that Wassa upper basin [ph] currently being mined have a lower-grade profile for bid to the deeper benches in the press[ph]. We are thus expanding on the life of this operation as grade will increase. I'm pleased to note that this is the end of higher cost production, and we expect cost balance to be lowered over the next 3 quarters. The high cash costs per ounce for the first quarter was impacted by lower grades and lower recovery. Higher mining costs were due to the utilization of contractors to replace the equipment that we moved to Wassa. At the quarter end, we had cash on hand of $58 million with a further $10 million available in our Ecobank facility. Wassa has capital equipment facilities of $23 million, which [indiscernible] will require in the near future. Initial budget calls for a further $38 million in capital expenditures for the remainder of the year, however, a significant portion of those is discretionary, so we may later reduce it if we feel it appropriate. Current drill prices, we expect our operations to generate positive cash flow for the remainder of the year, and we will therefore be improving our working capital position. Now I would like to take a few minutes to talk about Wassa and it's tremendous growth potential. At the end of 2011, we had a relatively small pit, with 2 years of mine left -- mine life left. Structural geology suggested a deep-rooted system below water [indiscernible], but at Wassa is located. So we drilled a number of deep holes below the main pit shelf. Results were encouraging. In 2012, we continued to drill down branch [ph] to the south. Drilling out to August 2013 continued successfully, and we've updated and published an open pit reserve at year end. Mineral reserves increased 34% to 2 million ounces, pleasingly at a 20% higher average grade. Those were despite a reduction in the gold prices in June we use to calculate these results and after mining depletion. Similarly, mineral resources increased 29% to 3.3 million ounces. During September 2013, we completed a further 48 holes or approximately 26,000 meters of drilling. This was both in-fill and step-out drilling. The in-fill drilling confirmed the geological continuity and existence of zones of significant grade. To step out at 200 meters and 400 meters from the third full [ph] zone confirmed the gold mineralization extended down branch [ph] and is open to the south. The extent [ph] of drillers of and realization of the increasing rate at Wassa led us to consider underground mining at Wassa. A concept study completed in 2013 indicated that initial economics for certain mines would be favorable. We are currently doing a PEA on an underground mine, which we intend to publish in the third quarter. Our current drill program is nearing completion. These results will be incorporated into the updated mineral resource estimate to be announced later in the third quarter of this year. In conclusion, Golden Star at Bogoso is focusing on higher-grade non-refractory ore, leading to lower cash operating costs. The development of Wassa's potential and has been -- this low-cost strategy along with operational cost reduction efforts, the upside potential for both mines is good with optionality preserved. This concludes our call for today. And I thank everyone for joining us on the quarterly call. I will now turn it over to Shannon, the operator, for further questions. Thank you, operator.

[Operator:]

[Operator Instructions] And we will take our first question from Andrew Breichmanas with BMO Capital Markets.

[Andrew Breichmanas:]

Just couple of questions on Bogoso. I guess, first the refractory plant processed more this quarter than, I think, it has in the last 3 years, so, can you maybe just talk about on the improvements that have been made there and whether that kind of rate is sustainable going forward?

[Samuel T. Coetzer:]

Great question, Andrew. You've been following over the last few years, and you've heard the work that we did and firstly, the power plant to ensure that we stabilize the big buyouts [ph] during any power issues that we might face. Secondly, we spent money over the last 2 years on new gearboxes on the top [indiscernible]. We've had a change in the pedestals. Previously, which saw vibration on those pedestals, and we would be losing some of our primary BIOX then. That has now been -- with the new gearboxes and new pedestals has improved its throughput. It's always been an issue for me and my team, and for Daniel especially, that the primary tanks need to operate very efficiently, and the big difference is found at the emphasis on ensuring that those primary tanks are dealt with. Secondly, we've been able to deal with order supply and order management and the supply of order into the plant has been of a better quality. We want to hold that to ensure the stability in the plant. Lastly, we also have, over the last 2 years, put more control mechanisms in the plant, electronic control mechanisms, i.e., vibrating monitors and on some of the facilities and that has allowed us to do planned maintenance upfront. So I have got a -- and I've been on there last -- I have a fantastic team with a new mix [ph] manager down there and was new last [indiscernible] has done a fantastic job to keep this plant running the way that we want it to run.

[Andrew Breichmanas:]

Okay. And I guess, the second part of it was on the tailings retreatment, where I guess, it was performing in -- according to expectations, but recovery seem to have dropped a bit. So how do we think about that? Is it still providing lower costs down through -- at Bogoso, and what's sort of expected from that?

[Samuel T. Coetzer:]

On that, Andrew, actually, we reduced -- as we've increased the rate toward the end of last year giving 565,000 tons per day, we started a new front [ph] in the beginning of this year, the first 3 weeks of the quarter, which -- actually did say, monitors running and when we started that, we were in an area with lots of reeds [ph] and just a lot of organic material, and the first 3 to 4 weeks, you have to go through that, we washed that into the streams and it put block some of the throughput and also impacted a little on recovery, towards March or the latter part of February, those region -- that top layer 2 inches of the tailings then has now been run through, and we now have 2 full lines running, and we're now picking up to the 5,000 ton per day, and seeing the recoveries back at the 42%. So about the early part of the year, when we started the second front [ph], but a very good pickup from you that it was a bit slower than previous quarters.

[Operator:]

[Operator Instructions] And next we go to Robert Reynolds with Crédit Suisse.

[Robert Reynolds:]

My question is on your medium-term outlook for 2015 production of 250,000 to 280,000 ounces. Would you guys just be able to give a split of what you see from Bogoso and Wassa in 2015?

[Samuel T. Coetzer:]

Yes, no problem. I can do that. I don't have it with me, but I just recall that. Bogoso, for the next 2 years, will remain at the basically at the rate that it is, drop also towards the end of last quarter a little, and Wassa should -- we've given guidance as about the same rate that we've seen this year. So Wassa would gradually start increasing again while Bogoso will drop off at the end of next year. We have 15 months that we want to run through the low-cost high-grade ounces -- higher-grade ounces at Bogoso. It will really be very similar to this year with a smaller impact from what Bogoso will have at Chujah by the end of next year.

[Robert Reynolds:]

So the difference versus 2014 is really driven by Bogoso?

[Samuel T. Coetzer:]

It is. Really by Bogoso, but the positive what we tried -- Bogoso's cash rate would increase, and as you know, Bogoso, unlike Wassa, is not in any tax -- taxable situation, so we want to increase for the next 3 years free cash flow from Bogoso as much as we can.

[Robert Reynolds:]

Okay. And then, the $900 to $950 cash cost, that's cash operating cost pre royalty?

[Samuel T. Coetzer:]

Yes. That's correct, yes.

[Robert Reynolds:]

Okay. And then what's your outlook for sustaining capital in 2015?

[Samuel T. Coetzer:]

I think it was very similar to what we have on sustaining capital to what we have -- at this, we will not have the pushbacks from [indiscernible] at Bogoso, so the reduction would be really no pushbacks, which would be in this year's capital. We had about $7 million remain, so that will be reduced. We are reviewing, obviously, whether we want to do more drilling at Wassa, and -- but at this stage, the capital profile will not be much different to what it is this year. Yes, we're looking at that $10 million [ph] per mine.

[Operator:]

[Operator Instructions] And it appears there are no further questions in queue at this time. I would like to turn the conference back over to management for closing remarks.

[Samuel T. Coetzer:]

Well, thank you for everybody listening. I'm glad to say that [indiscernible] I think is complete for us. From this point onwards, we are moving forward on the new mine plans at both sites. And I want to take this opportunity in wishing Angela Parr to the best of health. She's taken a little bit ill, but tell here we're thinking of Angela, and I hope she gets better soon. Well, thank you, everybody, for joining us. And well done, bye.

[Operator:]

And ladies and gentlemen, that does conclude today's conference. We do thank you for your participation.