Toronto Jan 4, 2016 (Thomson StreetEvents) -- Edited Transcript of Golden Star Resources Ltd earnings conference call or presentation Thursday, October 29, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Sam Coetzer Golden Star Resources Ltd. - President & CEO * Andre van Niekerk Golden Star Resources Ltd. - EVP & CFO ================================================================================ Conference Call Participants ================================================================================ * Benj Gallander Contra the Heard - Analyst * Raj Ray National Bank Financial - Analyst * Paolo Lostritto Red Cloud Mining Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- 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 the results. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [2] -------------------------------------------------------------------------------- Thank you and good morning everybody on the line. Joining me today are my colleagues, firstly is 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, the start up of mining at the Prestea Open Pits commenced. Today I am 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 focused dedication of the Golden Star team, 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 processed the low grade tailings. In terms of our development projects, the Wassa Underground leach line development has now achieved 382 meters to date. On the Prestea Underground redevelopment has commenced. Production is 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 complexities have been reduced by us now mining [3 million] ore only; and also our liquidity has improved. [Moving to] financial performance for the quarter, we saw a continued decline in gold price to below $1,100 an ounce; lower production due to the suspension of the refractory plant, resulting in a lower revenue of the third quarter versus the second quarter. However, cash operating costs decreased to $988 from $1,100 in the previous quarter. The cost of sales before depreciation and amortization decreased by 30% (technical difficulty) $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 is very telling indicating our quest of improving margins. Non-operating expenses trend is positive, costs continue to decrease. Wassa costs reduced through operational efficiency, including equipment and haulage cost reductions. The Bogoso/Prestea costs reduced as the refractory operations were suspended. On a cost per ounce 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 improve their cost. We have now entered into a higher grade area of the ore body and grade has increased by about 11% in the third quarter, which accounted for most of the increased gold sales from Wausau. That obviously resulted in a 16% increase in gold sold. We expect consistent production going forward; gold production to be enhanced when the underground ore starts contributing in the second half 2016. Our team at Wassa has done a stellar job at reducing cost, finding significant operational efficiency. For example: improved mining efficiencies, reduction in personnel and contractors as we continue to improve productivity at this mine. We also saw certain (inaudible) costs reduce over the quarter. We are continuing on looking for cost saving initiatives. All of this resulted in a lower cash operating cost over the last three quarters and cash costs at Wassa are now well below $800 an ounce. At Bogoso and 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, so too did our costs. Inventories were [keyed] up and we processed low grade stockpiles that remained. The tailings retreatment program was suspended and we commenced feeding higher grades and better recovery ore at the end of August. We expect to see recoveries of about 90%. On this slide recoveries indicate and improvement from 44% to 68%, which is still the impact of the tailings production in the first part of the quarter. Currently recoveries are now over 80%. Mining at the Prestea Open Pits commenced in August and the open pits have now been supplying over 3,000 tonnes per day by the end of the quarter and grades are now in excess of 2 grams a tonne. We expect this business line to produce between 20,000 and 25,000 ounces in 2015. The Prestea Open Pits have truly been exceeding our initial expectation. During the quarter we continued to advance 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 to date and we expect to complete just below 1,000 meters by year end. The Prestea Underground project is now firmly underway. Both of these available projects are funded with a $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 and financing in the second quarter of 2015. We commenced the construction of the support infrastructure and that is now 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 ore by mid-2016. Obviously you can imagine we are eager to see the processing plant receiving higher grade ore from the source. At this stage I want to talk a little bit about the development potential at Wassa. I remain very excited by what we see in this ore body. As you are aware, our focus is to develop what we call the B Shoot. On this slide it is indicated by the large [summit]. It was on the B Shoot we did the feasibility study and raised our funds. However, at the bottom of that zone we intersected a hole grading 5.9 grams a ton over 70 meters, which is about 50 meters parallel to this main (inaudible), which we now call the F Shoot. This hole and (inaudible) structure lines up with a shoot close to surface, which we intend to mine early next year. Our focus is now to review the potential of a parallel zone to the B Shoot, which would obviously be 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 shaft] upgrades 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 will be ramping up to 500 tonnes per day by the end of that year of very high grade material. Today I would like to explain to you the picture we see at Prestea. On the surface we have a collection of three digging pits ranging between 2 to 3 grams a ton, a relatively low cost mining environment. The surface and Prestea Underground pits are in close proximity of one another allowing for real synergies here to be unlocked. (Inaudible) ore will be hauled [16] kilometers to the processing facility which has a capacity in excess of 3,000 tons per day. The underground mines, specifically the West Reef, has reserve grade of over 15 grams a tonne and the combination of both the open pit and the underground and is expected to yield good results. Both the pit and 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 target -- most notably the commencement of the underground decline on 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 this strategy through: number one, the continued reduction of cash operating costs; the suspension of the refractory business line; improving our liquidity; and lastly, we continue to review upsides existing in this Company yet are intact. I will now turn it back to the operator for any questions which Andre and myself will take. Thank you, everyone. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Benj Gallander. -------------------------------------------------------------------------------- Benj Gallander, Contra the Heard - Analyst [2] -------------------------------------------------------------------------------- Congratulations on the progress that you are making. It sounds to me from what I am hearing that other people are also noticing progress and there are some rumors that people are -- companies are interested in buying Golden Star. I am just wondering how willing you guys are to sell and if you have got a price in mind at which (technical difficulty)? -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [3] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Benj Gallander, Contra the Heard - Analyst [4] -------------------------------------------------------------------------------- But you are open to take over offers as they come in, right? -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [5] -------------------------------------------------------------------------------- We -- I will not discuss any of those opportunities because our focus is now to get the Company to a much better place. -------------------------------------------------------------------------------- Benj Gallander, Contra the Heard - Analyst [6] -------------------------------------------------------------------------------- Okay, well, I do appreciate the work that you are doing. And I hope as people on the Board and in charge of the Company (technical difficulty) investors' interest as (technical difficulty) transpire. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [7] -------------------------------------------------------------------------------- Right, thanks for that. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (Operator Instructions). Raj Ray, National Bank. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [9] -------------------------------------------------------------------------------- A few questions here. See you spent around $2.1 million on the Prestea Open Pit in the quarter. Do expect any more development CapEx at Prestea Open Pit? -------------------------------------------------------------------------------- Andre van Niekerk, Golden Star Resources Ltd. - EVP & CFO [10] -------------------------------------------------------------------------------- Yes, there will be a little bit that we earmarked for in the fourth quarter, probably around another $3 million that we would spend (technical difficulty) downsize. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [11] -------------------------------------------------------------------------------- Okay. And can you give us some idea about the costs that you are seeing -- the mining costs at Prestea surface? -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [12] -------------------------------------------------------------------------------- I can't give you -- we are going to give you a full update obviously when the next guidance comes out. We now have a much more clearer picture of what we can achieve there. Roughly what we looking at to run the Company or (inaudible) third quarter or Prestea third quarter will 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 have been exceeding our expectations here and we want to see a full month or two of only this operation by itself. But you can (inaudible) typically three big without blasting and holding costs and processing similar to the Wassa cost per tonne which is [at least] $16 to $18 a tonne. And we 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 maybe by once we update we have a much clearer picture of what the cost structure will be. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [13] -------------------------------------------------------------------------------- Okay, thanks. And next question is on the CapEx for the tailings. Is that mostly done or you still have some spend there? -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [14] -------------------------------------------------------------------------------- You talking about tailings at --? -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [15] -------------------------------------------------------------------------------- Expansion. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [16] -------------------------------------------------------------------------------- At Wassa or at --? -------------------------------------------------------------------------------- Andre van Niekerk, Golden Star Resources Ltd. - EVP & CFO [17] -------------------------------------------------------------------------------- Yes, we still have some spending to do on that side. Most of that spending will actually happen from now on where we were in the rainy season and we are going to the dry season from December and early next year. So we are gearing up and getting ready to get the work going on the [TSF]. So, you would see about $2 million in the fourth quarter this year related to (inaudible). -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [18] -------------------------------------------------------------------------------- Okay. And one last question on this probably before Andre again. Just an update on the tax legislation. I saw (inaudible) you'll 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, Golden Star Resources Ltd. - EVP & CFO [19] -------------------------------------------------------------------------------- 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, ensure that the 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 changes that (inaudible) maintenance costs would be treated as a capital allowance and you would only get that deduction over five years, 20% per year. What we have seen in our models is that we have been building up quite a bit of our capital allowance for the next two to three years with the construction happening. So we don't expect that to have a major impact on our taxable income at Wassa because we would have probably the equivalent of 100% pulled out by the time that would have an impact. There is some other changes, defined [ring fencing], that is how we expected we would look at the processing plant as the common denominator, ore going through the same processing plant will be considered ring fenced. And royalties and those kind of taxes remain the same. And then there were some changes to our capital allowances such as I mentioned, for other industries we're still looking at [20%] per year for the mining. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [20] -------------------------------------------------------------------------------- Okay, so overall not a major impact is what you are seeing? -------------------------------------------------------------------------------- Andre van Niekerk, Golden Star Resources Ltd. - EVP & CFO [21] -------------------------------------------------------------------------------- Overall what we are seeing -- not at this stage, no. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [22] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Andre van Niekerk, Golden Star Resources Ltd. - EVP & CFO [23] -------------------------------------------------------------------------------- If we are going to do some more work and dig more into it in the fourth quarter, if there is any more information that needs to be disclosed we will have that in our yearend results. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [24] -------------------------------------------------------------------------------- Okay, thank you. That is it for me. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Paolo Lostritto, Red Cloud. -------------------------------------------------------------------------------- Paolo Lostritto, Red Cloud Mining Capital - Analyst [26] -------------------------------------------------------------------------------- Most of my questions have been answered, but I wanted to get a sense, Sam, from you or if Mitch is there, on central timing of results from the F Shoot. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star Resources Ltd. - President & CEO [27] -------------------------------------------------------------------------------- Right, right. So what we -- we will be updating probably early into next year. We have had additional drilling in what we used to call the (inaudible) which we now know as the F Shoot. So we will be updating the information of drilling there. And then obviously we -- having the declines down -- going down we will be able to draw fairly quickly from underground. So hopefully by end of this quarter, early next quarter we could be more definitive in terms of what this F Shoot means for us. -------------------------------------------------------------------------------- Paolo Lostritto, Red Cloud Mining Capital - Analyst [28] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- (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, Golden Star Resources Ltd. - President & CEO [30] -------------------------------------------------------------------------------- Thank you, thank you (inaudible). For those that are listening in on the call I thank you too as well. We continue to move the Company forward, streamline it and focus on what are our long-term strategy views. We will keep you updated of any development that we see in the Company. Thank you for joining us today. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- 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.
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