Toronto Aug 26, 2015 (Thomson StreetEvents) -- Edited Transcript of Golden Star Resources Ltd earnings conference call or presentation Thursday, July 30, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Sam Coetzer Golden Star - President and CEO * Andre van Niekirk Golden Star - EVP and CFO ================================================================================ Conference Call Participants ================================================================================ * Raj Ray National Bank Financial - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, everyone, and thank you for joining us to discuss Golden Star Resources' second-quarter 2015 results. The financial statements were filed last night and these are available on the Company's website at www.gsr.com. Please also 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 these results. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star - President and CEO [2] -------------------------------------------------------------------------------- Thank you, Jana. Thank you all for joining us on this call this morning. I trust that you have seen our financial results that we released last night as well as the announcement on the Royal Gold financing that we released yesterday morning. Our last two announcements detail the critical decisions that we have taken in the last month. We remain undeterred in our resolve to transform this Company to a lower-cost non-refractory underground producer. The funding from Royal Gold provides us with the bridge we need to achieve on the strategy. To preserve shareholder value, we have decided to suspend refractory operations with immediate effect. In the near term, our efforts will now be focused on delivering production from the Wassa and Prestea open-pit operations. And also at the same time progressing our longer-term objective of bringing the Wassa and Prestea Underground mines into production. I am pleased to say that we have started mining in the twin declines at Wassa and we continue to upgrade the levels at our Prestea Underground mine. Despite the challenges that we face as an industry, our Board and this management team remain excited about this transformation. Joining me on this call today are my colleagues Andre van Niekirk, our Chief Financial Officer, and Angela Parr, our Vice President of Investor Relations and Corporate Affairs. Firstly, I would like to take this opportunity in thanking Andre and our Chief Operating Officer, Daniel Owiredu, and their teams for their efforts that were put in, in closing the Royal Gold financing. A financing of this nature has not been done in Ghana before and extensive management time was required to shepherd this transaction through the approval processes. Moving on to discuss the operational matters for the second quarter. At Wassa, we returned mining into the main pit. We saw higher grade and the mine had a solid performance in terms of processing that ore. However, fluctuating power at the Bogoso mine hampered processing for a second quarter in a row. Just to give you an idea, at year to date, our tons processed at this operation are below 80% of the Company, and that was due to regular daily outages. On the bright side, we had the first blast at the Wassa Underground declines, and this construction is ongoing. At Prestea South, we received the permit for mining in the open pits at Prestea and we have now upgraded both our non-refractory plans to be able to treat the new ore sources. Obviously, revenue was negatively impact by lower gold prices and more so by the weaker Bogoso refractory production. Mine operating expenses and cost of sales before severances reduced again at both operating mines and we expect even further reductions in the second half of this year. In line with our decision to suspend the refractory operations, the carrying value of Bogoso refractory assets were written off in totality, resulting in a $34 million impairment. Mine operating expenses continue to reduce and will decline further into the second half of this year as we continue to transform this business. However, the reduced processing capacity at Bogoso refractory operations negatively impacted on the unit costs for the quarter. But at Wassa, the performance had been solid, and this mine is on track to meet the full-year 2015 guidance. Our group cash cost balance has now been revised upwards to about $1,000 an ounce as a result of the changes in the mine plan, and also the poor first half of the year that we have seen from Bogoso. It must be noted that our future mine -- Wassa -- and the non-refractory plant at Bogoso has operated to our expectations. Talking about Wassa, at Wassa, the ore mined, as I indicated, increased during the quarter as we have now all our equipment in the main pit focusing on mining the B chute, which is also the ore body that will host the higher-grade underground mind. On a year-to-date basis, the stripping is in line with the 4 to 1 and we expect that to continue for the full year. Ore process decreased slightly, as we had some crusher downtime by the end of the quarter, but we fixed that problem and the availability is back. We see the grade continue to improve in the main pit, as we predicted before. During the quarter, the processing plant was enhanced with the installation of a thickener that should improve our capacities and recoveries going forward. As I speak to you, those are currently being tied in at the mine. In [new] mining, efficiencies has improved and our mining costs are now trimming below $3 a ton and we expect further reductions as we unlock further efficiencies in the mining department to go forward. Our full-year cash costs, though, hovers around on guidance and are around $920 per ounce. At this stage Wassa is evaluating further cost savings initiatives for the 2016 and our plan is to operate this mine optimally at below $1,000 gold price going forward. Let me discuss the Bogoso business from this point on forward. As you know, the economics of this business is not stellar, especially in the refractory business. In light of the current gold price environment, we have made some choices which we believe are prudent. To continue mining the refractory ore will not only absorb management time, it will absorb cash that can be better deployed elsewhere in the Company. For that reason, we will be suspending operations in the refractory business with immediate effect. We are approaching the suspension in a responsible manner. The mining team has already been severed over the last quarter, and the remaining noncritical staff complement will be severed in the next month. We have over 200,000 tons of ore in stock pile and we will assess on a daily basis the value of running that through the plant. Accounts payable are to be reduced over the course of the next 36 months. Furthermore, we will curtail tailing retreatment in favor of treating the higher-grade Prestea South complex ore. This will also save $3 million in CapEx for a tailings lift and will also deliver lower-cost ounces for the immediate future. We are now in the process of renegotiating our water treatment costs, which will reduce our liability going forward. Bogoso will then function purely as a processing facility for Prestea South ore. We have commenced the n establishing of an ore stockpile during the latter part of July to commence processing in early August. Let me talk about how [everybody] is responding to the changing market dynamics. To survive under the current conditions, you need to respond quickly to changing market dynamics. I believe we have just done that. We have advanced our transition into lower-cost production by advancing production and suspending Bogoso refractory operations immediately. We were also fortunate that we got the permits, the community support, and we have started mining in the Bondaye pits over the last 2 to 3 weeks. We are stabilizing and de-risking our balance sheet with debt reduction, cash injection that we received from Royal Gold, and lower future capital costs. Lastly, we are planning for longer-term market pressure, specifically at Wassa, where cost savings will be slowed going forward. So reviewing the recent announcement regarding our funding, we now have a long-term financing partnership that we've entered into with Royal Gold. We have received $60 million in financing since the transaction closed on Tuesday night. We are expecting a flow of funds of $50 million a quarter for the next six quarters, a vote of confidence in our future assets by a respected industry participant after extensive due diligence was done. At this point, I want to reiterate that we have the support of the Royal Gold management and that the extended period of time that was required to close the transaction was as a result of regulatory hurdles in Ghana. Moving on to discuss our future for our two new projects, let me start at Wassa, as the progress we have made here over the last quarter have been truly remarkable. We now have all the mining equipment on-site to deliver on the projects, and that includes the two jumbo drills. We have a full team of skilled people running the project. We have had the first blast from the declines and on a daily basis, we are now advancing the declines. The portal has held up very well and the country rock is very competent in our first blast that we have been seeing. We have an electrical infrastructure installed, including a 4 MVA generator capacity. We are nearing completion on the construction of the support infrastructure at this point. In the second quarter, we spent $3 million and we have a further $10 million to be spent in the remainder of the year. And that will go mainly into the development of those two declines. At this stage, I want to remind you of the upside that we see at Wassa. As you know and as we talked about in the past, Wassa has a large license area and the anomalies indicate that the mineralized trend continues for 6 kilometers beyond our large tip-out. Just to give you an indication, for every 500 meters we step out and intersect grades similar to what we have seen to date, there are an additional 600,000 to 700,000 ounces potentially to add to resource. We believe that we can exploit this potential from the existing underground mine design and the infrastructure that we currently putting in. We remain excited with the progress we witness at Wassa to stand the current market conditions going forward. Discussing Prestea, we have finally secured the mining permits for the oxide pits we referred to as Prestea South. We are focusing our efforts on starting our current operations in the Bondaye South Pit 2, which is part of a three-pit group. Mining in these oxide pits has commenced. Processing of first gold is expected in the next month, in August 2015. We have already commenced trucking ore to stockpile at our processing facility at Bogoso. The underground feasibility study has progressed well and we expect results early in the third quarter, and this should indicate opportunities for improved capital efficiencies. Rehabilitation of the main underground mining levels continued and we spent $7 million to date on that project. We have continued to advance the projects pre- the closure of the Royal Gold financing, allowing for CapEx buffer to exist. Once the upgrade of the shaft and ventilation systems are complete, we will be considering an exploration strategy, aiming at increasing daily tonnage from the underground mine. Further drilling is expected to expand the mineral resource conversion up- and down-plunge of the extension of the West Reef ore body, and we will use the current [infrastructure] to utilize that increase. We are also of the belief that significant Main Reef upside at depth below the current workings in the West Reef. Indications are the Main Reef could be non-refractory in nature, yet this needs to verification. I have said many times that this business is endowed with extensive infrastructure. The challenge for me, my team, and the Board is how do you leverage sensibly all this infrastructure to the benefit of your shareholders. And it does take time to build a new company on an old. But I believe that our two development projects will achieve this, and this is evident in the high rate of returns our studies show. Our low CapEx per ounce ratio relative to our developing peers also demonstrate the capital efficiency of these projects. Just reviewing the timeline for delivery, we have delivered on our key milestones year to date and intend to continue at this pace with this over the remainder of the year. At Wassa, the two twin decline construction is now our key focus and we still expect first ore in the first quarter, by the first quarter of 2016. We await the findings of the Prestea feasibility study and then after we will determine the optimal processing methodology for this high-grade ore. We are now heavily in construction mode, but our mining teams at both Wassa and Prestea open-pits are insulated from this. And we will continue to focus on delivering production from these mines. But at this stage, I would like to hand the call over to the operator so that I can answer any questions -- or Andre with me -- that you might have. Thank you, operator. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Raj Ray, National Bank Financial. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [2] -------------------------------------------------------------------------------- My question is on Prestea open-pit and what throughput rates you are expecting out of there over 2015 and 2016. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star - President and CEO [3] -------------------------------------------------------------------------------- So how we look at it at this stage, Raj. We are looking at about what we have guided is about 70% of the capacity of the plant. And we took a conservative view at this stage to make sure that we can meet the requirements that we want. So the guidance we gave was about 68% of a capacity of about 1.4 million tons per annum. Should we be able to increase the mining rate through drilling and through great controlled drilling, we would hope to improve that throughput. So you can work round about 70% to 75%. And if we see that we can increase that, I will let the group know. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [4] -------------------------------------------------------------------------------- Okay, thank you. And the second one is do you expect additional severance charges? And do you have a number in mind what it might be? -------------------------------------------------------------------------------- Sam Coetzer, Golden Star - President and CEO [5] -------------------------------------------------------------------------------- Oh, yes. We did a full plan on the severance. I'm going to hand that to Andre because we knew that we were going to get to this point. We are just a bit earlier. So we have had preparations on severance long before today. -------------------------------------------------------------------------------- Andre van Niekirk, Golden Star - EVP and CFO [6] -------------------------------------------------------------------------------- Under the severance, we basically are fully accrued for all the severance that need to be paid in 2015. We booked an additional accrual of $13 million, of which $3 million was paid during the second quarter. So we will let another $10 million over the remainder of this year. That will happen later on, when we have suspended the refractory operation completely. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [7] -------------------------------------------------------------------------------- Okay. And the [underwriters] are still there. I had a question on funding for the Prestea Underground and the Wassa Underground. Do you think, with Bogoso now going out of mine [left] earlier than expected and the current gold price, you are fully funded to production for those assets? Or that you might have to look for external funding at some point in 2016? -------------------------------------------------------------------------------- Andre van Niekirk, Golden Star - EVP and CFO [8] -------------------------------------------------------------------------------- We still have the Ecobank 2 line available at our disposal. When we remodeled the closure or suspension of the refractory business, we looked at the development program. And based on what we are seeing, we still have sufficient funding to complete both projects by 2016 -- end of 2016. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [9] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Thank you. There are no further questions at this time. -------------------------------------------------------------------------------- Sam Coetzer, Golden Star - President and CEO [11] -------------------------------------------------------------------------------- Thank you for all those taking part in our call. And I'm excited as we see the transformation of this business. We continue to reduce our cost structures down and I do believe that we are at a point where we will start seeing some improvement in our results and continue to deliver on the projects that we want to bring into production during 2016. Thank you for joining us and we are open for discussion if anybody wants to give us a call at any stage. Thank you, operator. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.
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