|
The last time I
wrote about Golden Star Resources is almost a year ago. I was
very supportive of
this company and wrote several articles which were posted at
the Café. The
articles are referenced here below.
Golden Star
Resources Straight Talk
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=5053&SearchParam=golden%20star
Exposing the Short
Sellers Manipulating Golden Star Resources
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=5170&SearchParam=golden%20star
The Turning Tide At
Golden Star Resources
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=5192&SearchParam=golden%20star
Putting the “Star”
Back in Golden Star Resources
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=5320&SearchParam=golden%20star
I know a lot of
café members follow my writings and may have wondered why I
had not written
anything in the last year about GSS so I thought an update might
be well received.
As my previous
articles have elucidated I have always considered the
fundamentals of
Golden Star to be outstanding. They have a resource base of
over 10 million ozs
of gold in their Ghana property and the potential to prove up a
lot more quite
easily. When GSS acquired the property from Billiton the easy
pickings of the near
surface oxides had a very limited mining life remaining, but
there was huge
potential in the underlying sulfides. But the extraction of gold
from the sulfides
had proven to be extremely challenging. GSS were certain they
could solve the
problem by using a BIOXX process which employs microbes to
remove the sulfides
instead of traditional heat treatments that had failed in tests
previously attempted
on the ore by Billiton. The prize of success was to have
access to very large
unexploited gold sulfide resources and to be able to ramp up
production to around
500,000 ozs of gold per year.
GSS was a
speculative investment which was betting on the ability of the GSS
team to solve all
the technical challenges of a relatively new and difficult process.
Many investors
shared my confidence that GSS were up to the challenge.
GSS management then
made a series of errors that made them lose the
confidence of many
investors. First of all they made a failed attempt to takeover
IAMGOLD. Many
investors questioned why a junior with such fabulous resource
potential needed to
make an acquisition. It made people wonder if this wasn’t a
tacit admission that
they couldn’t deliver on the promised expansion on their own
property. It was not
the case, but shareholders sold the stock anyway. After
failing in the
IAMGOLD takeover, GSS management didn’t get the message from
a falling stock
price that shareholders didn’t want to see the company make any
acquisitions, and
they promptly made an acquisition of St Jude! The Ghanaian
properties of St
Jude did have significant synergy for GSS but shareholders were
in no mood to take
note.
The final straw that
broke the camel’s back was that GSS decided to hedge part
of their production
by buying puts at $400/oz. The cash to buy the puts was
raised by selling
call options at $525/oz which meant that upto17% of their
production would be
sold at $525/oz up to March 2007. Even their staunchest
supporters and
shareholders at this point threw in the towel!
I had many testy
e-mail exchanges with their CFO at the time, Allan Marter. He
arrogantly defended
this action but eventually GSS announced that they would
close their hedge
and I managed to extract a commitment from Allan Marter in
writing which was
QUOTE
“I think it is
accurate to say that we do not intend to hedge our gold in the future –
ever.” –
Allan Marter CFO, Golden Star Resources, April 4, 2006
END
Allan Marter is no
longer with GSS and in my opinion that is a big positive for the
company!
I always thought
that the growth story of GSS was a compelling one and that the
fundamentals of the
company were outstanding. Later in 2006, however, I
reduced my holding
in GSS, not because I thought any less of the potential of
GSS but because I
saw greater potential elsewhere, and I was frustrated dealing
with someone like
Allan Marter who didn’t seem to share my view that the
company belongs to
the shareholders, not the management team.
Many café
members will be aware of the fairly recent development of my
proprietary analysis
indicators of Kinetic and Potential energy. In figure 1 the
energy chart for GSS
is presented.
The upper part of
the chart shows the price from 2002 to 2007, while in the lower
window the kinetic
energy is in green and the potential energy is in blue.
Had this analysis
been available much earlier it would have provided an
extremely useful
supplement to the fundamentals. The energies were only
synchronously moving
up from mid 2002 to the end of 2003. This would have
indicated an entry
point shown by the green arrow of $0.8 per share and exit
point of $8/share
indicated by the red arrow where the energies started
synchronously moving
down yielding a 1000% gain.
 
The fortunes of GSS
have recently improved particularly with the successful
startup of their
BIOXX circuit and the end of their ill-advised hedging. The stock
price broke out of
its down trend in early 2006 (see red circle) but anyone buying
on that signal would
have seen the stock price trend sideward for almost one
year. The energies
only broke their downtrend at the beginning of 2007 and are
now moving synchronously
upward which predicted the entry point (second
green arrow) for the
start of a strong upleg for this stock.
The fundamentals of
this stock have always been excellent but the new energy
analysis is
indicating that the stock price performance will once again start to
reflect them.
Among the juniors my
top picks currently are still ECU Silver Mining and SAMEX,
but long term Golden
Star investors will be pleased to see that the prospects for
this stock based on
my new analysis and the fundamentals are looking very
attractive.
Adrian Douglas
Marketforceanalys.com
Adrian Douglas writes many articles
on his observations and analysis on financial markets, gold and silver
markets, and some selected company stocks. The articles were all initially
published at www.lemetropolecafe.com.
| 
