Bogoso-Prestea shines for Golden Star (November 04, 2003)

Golden Star Resources (GSC-T) has simplified life at the Prestea-Bogoso open-pit mines in Ghana by buying back of a gold-indexed royalty from South African-based Barnato Exploration.

To do so, Golden Star delivered 2.75 million of its shares to Barnex. The shares are valued at around US$12 million in all. Golden Star currently has around 84 million shares outstanding.

Golden Star’s chief executive Allan Marter said in a prepared statement, “The acquisition of the Barnex royalty will result in an immediate cash saving to Golden Star and a reduction in our production costs at Bogoso-Prestea.”

The royalty began at US$6 per oz. at prices below US$260 per oz. topping out at US$16.80 per oz. at prices exceeding US$340 per oz. In recent times the royalty represented about US$4 million in annual cash flow.

In recent times, the gold-indexed royalty represented about US$4 million in annual cash flow.

Golden Star now has an unencumbered 90% ownership of the Prestea-Bogoso operation, with the government of Ghana owning the remaining 10%.

Sourcing ore from Prestea’s Plant-North pit only, third-quarter production came to a record 50,871 oz. of gold at a total cash cost of US$182 per oz., nearly doubling the 27, 681 oz. produced at US$222 per oz. a year earlier. Likewise, the first nine months of the year saw a record 129,269 oz. produced at US$196 per oz., compared with year-ago output of 89,745 oz. at US$203 per oz.

The lower costs and increase in production are attributed to higher grades and improved recoveries. During the quarter average grades climbed by 70% to 3.7 grams gold per tonne; grades rose 46% to 3.44 grams gold during the nine-month period. Gold recovery at the Bogoso mill averaged 87.9% (up from 74.2% a year earlier), and 79.8% (72.2%) during the respective periods.

The company realized an average of US$363 for each ounce produced during the quarter, and US$356 apiece for the first nine months of the year, both improved by about 16% over the corresponding periods of 2002.

The company’s solid operational performance translated into record third-quarter net income of US$6.2 million (5.4 per share) on revenue of US$18.8 million, compared with year-earlier earnings of US$800,000 (1 per share) on US$8.4 million in sales. Nine-month earnings totalled US$14.7 million (13.8 per share) on US$46.6 million, up from earnings of US$3.8 million (5.5 per share) on $27.4 million.

Quarterly cash flow from operations (before working capital changes) amounted to US$8.4 million (up from US$1.4 million in 2002), and US$20.5 million ($5.8 million) for the first three quarters.

Looking ahead, GSC expects fourth-quarter production to slip slightly on lower forecast grades and recoveries. Likewise, 2004 production is expected to be lower as plans call for the mining targets mostly transitional and fresh ore at the Plant North Pit.

The company hopes to offset the decline via the relocation of a 4,500-tonne-per-day carbon-in-leach (CIL) plant acquired for US$4.3 million in July. The company also plans to add a bio-oxidation circuit to Bogoso’s existing 6,000-tonne-per-day CIL plant to allow for the processing refractory ores. The plan is subject to board approval and permitting.

In all, the plan, which also includes beefing up the mining fleet, carries an estimated price tag of about US$60 million. Financing will likely come from a combination of cash flow, debt, equity financings. When the dust settles, production from Bogoso-Prestea is expected to increase to about 175,000 oz. in 2004.

Underground exploration drilling and sampling of the Prestea deposit began in the third quarter with the goal of evaluating the potential for underground mining.

Meanwhile, GSC expects to obtain a mining permit for the nearby Wassa gold project by year-end. An independent feasibility study completed in July envisages an open-pit, carbon-in-leach (CIL) operation producing more than 140,000 oz. gold annually at an average cash cost of US$200 per oz. over four years.

The operation would target 3.4 million tonnes of oxides ore running 1.15 grams gold plus another 6.9 million tonnes of sulphides averaging 1.7 grams gold. Past operators also left behind some 4.4 million tonnes grading 0.7 gram gold on the project’s heap-leach pads.

Projected construction and development costs at Wassa have grown to US$25.5 million, with an additional US$14.2 million from a mining fleet to be acquired in 2004 and 2005. The company plans to fund the development via cash on hand and from cash flow from operations.

Wassa’s first gold pour is slated for early 2004 with milling of remnant heap leach material. Once the open-pit ramps up, annual production is pegged at 140,000 oz. at an average cash operating cost of around US$200 per oz.

In October, GSC bought back Wassa’s associated debt and royalties from a banking syndicate led by Standard Bank London for US$11.5 million. Golden Star has a 90% interest in the project; the government of Ghana is carried at 10%.

Also during the third quarter, GSC acquired Birim Goldfields‘ (BGI-T) Asikuma and Mansiso exploration properties for US$3.4 million plus a net smelter return royalty. The company is now the largest landowner along the prolific Ashanti Trend, with more than 100 km of strike length.

At quarter’s end, the company had US$57.3 million in cash and equivalents, up from US$20 million at the end of 2002. The company also had 121.2 million shares outstanding.