Golden Star Resources Ltd. Earnings Call Nuggets: Gold Price Determination and Reserves Outlook
Golden Star Resources, Ltd. (AMEX:GSS) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Gold Price Determination
Rahul Paul – Canaccord Genuity: With respect to the impairment charges, what gold price and discount rate did you use to test the carrying value of Bogoso and Wassa?
Sam Coetzer – President and CEO: Yeah, I think we (hadn’t done) a rate cut, but Jeff may be you can reiterate those (notes) as well.
Jeff Swinoga – EVP and CFO: Sure. Yeah, we used a consensus of analysts to get our gold price determination and it was approximately around $1,400. The discount rate we used for Wassa and Bogoso was 8% and 9%.
Rahul Paul – Canaccord Genuity: Did you assume revised reserves based on your re-optimized pits at both operations?
Jeff Swinoga – EVP and CFO: Yeah, what we did was we used the best available information we had at the time and that included using the re-optimized pits. But, of course, there is no information coming in all the time, of course, like drilling over at Wassa that hasn’t been included. And I am not sure, Sam, if you want to?
Sam Coetzer – President and CEO: Yeah, I don’t think it should be rating on what the reserves it’s going to be. We took when the gold price dropped, Rahul, we had different pit shells to immediately react to the market as we saw it. And those pit shells we used for the testing. That does not include the recent drilling that we’ve seen at Wassa. We’re going to have to update those reserves going forward and also the reduction that we now see that we can attain from the cost structures both at Wassa and Bogoso. That will be going into our calculation when we determine reserves going forward. Moving into the IFRS, we had to take that information that we released and see if this is how we’re going to react to the gold price and basically those are the pit shells that we’ve used in the calculation. The trigger point document we have now is reviewing in more detail what we believe we can achieve through the different sources we have and also the cost reductions that we’ve seen from both sites moving forward. So, we will be redoing our results with the latest information that we see and also assessing what the floor is that we see in the market and how we will adjust Wassa going forward…
Rahul Paul – Canaccord Genuity: What is the current carrying value ascribed to Bogoso? And how much of that is specifically for the non-refractory operations?
Jeff Swinoga – EVP and CFO: Yeah, we haven’t provided a detailed listing of the ounces for – resulting ounces for each of the operations, but that will come in our year-end report. So we’ll show that. Overall if you want to look at our total ounces though, we have – see – yeah, we’re at $270 million. Sorry, we’re at $270 million for Bogoso and $122 for Wassa, and then we have some corporate at $40 million, so total is $434 million.
Rahul Paul – Canaccord Genuity: Then just moving on to holding costs, I guess you reported holding costs at $3.9 million in Q2. Can you tell me what goes into that number specifically? What should we assume going forward for holding costs?
Sam Coetzer – President and CEO: Yeah, I think it refers to just Prestea Underground holding cost, and really, the cost there – because it’s an underground mine to keep it at good-standing, the opportunity – the majority of the cost save is to ensure that you keep it dry and you pump it, and you keep it dry and you pump it, and you keep your shaft to good-standing in terms of your upgrade or ensuring that the shaft is in good-standing, Rahul. So, those two components are the big numbers that drive your holding cost at Prestea Underground.
Rahul Paul – Canaccord Genuity: So, would that include money spent to advance the project as well; I mean spending on drilling, engineering, feasibility levels and that sort of thing?
Sam Coetzer – President and CEO: Yes, in the first two quarters that’s what we did. We had one drill drilling for the feasibility study; the geotech work that we wanted to complete to ensure that we have the understanding about the geotech. We have now slowed that down. We believe we have enough information. And so, it would have included also the upgrade of the upper levels in terms of the rail. It was a smaller number, but just upgrading and keep it again in good-standing.
Jeff Swinoga – EVP and CFO: Just to add to Sam’s comments, going forward, since we have a positive feasibility study and since we have a new accounting policy which shows economic potential at Prestea Underground, we intend to be capitalizing those costs that are associated with the project.
Andrew Breichmanas – BMO Capital Markets: Just wanted to follow up on the resource update at Wassa. I assume that we won’t see any of the impacts on reserves from the re-optimizations on the pit shells in that release. But could you just let me know what gold price do you plan on using for that update?
Sam Coetzer – President and CEO: We are in the process of assessing that right now. As you know, the pit shell was done at $1,100 per ounce and looking at the numbers we’re looking, we are having a serious look – we’re going into the process. Now, Andrew, I don’t have a number to give you now on what we will be assessing for the reserves, but it will be lower than what we had before at the ’14, ’15.
Andrew Breichmanas – BMO Capital Markets: But just so I’m clear, the update this quarter is, it’s just going to be a resource update, the reserves won’t be updated now?
Sam Coetzer – President and CEO: That’s correct. The reserves will be by year end.
Andrew Breichmanas – BMO Capital Markets: I guess, the next question is, could you provide maybe a little bit more detail on these proceeds for the new facility? Then if some of the opportunities you’re looking at maybe advances their potential to increase that in the future?
Sam Coetzer – President and CEO: I guess you’re referring specifically to Wassa?
Andrew Breichmanas – BMO Capital Markets: Yeah.
Sam Coetzer – President and CEO: Yeah. So what we’re doing are – obviously when we read it, the pit at Wassa at $1,100, we obviously, as you would know, there will be less tonnes required to go into the tailings facility. So what we’re doing now is reassessing, should we take that up? And if it’s more robust to take it to a higher pit shell, and also looking what we’re seeing from the underground mine or the underground potential, and the drilling we want to do below there to accelerate those high grade ounces below the pit. We now are like taking a call on what is the right TSF or the tailings capacity to design, and what is the speed that we want to look at, Andrew. We’re not just looking as we did before at one big tailings facility. We’re looking at, can we do it in shell? Can we reduce the risk of our capital that is going to flow out? So our assessment in what we’ve seen with the trigger document, it will tell us how to make the decisions in terms of our options available to design a tailings dam that can conform to the cash flow required to drive that project, and to keep its cost structure where we want it to be.
Andrew Breichmanas – BMO Capital Markets: Sorry, I was talking about the use of those funds from the $50 million loan that you…
Sam Coetzer – President and CEO: All right, sorry, it was – Andrew, I misunderstood.
Jeff Swinoga – EVP and CFO: Yeah, Andrew, just – this facility is very beneficial to the Company, and I know you’ve got a targeted question, but the key thing here is that it provides a lot of flexibility for us to look at Wassa in different ways that’s not, kind of, targeted to a certain mine plan or a certain opportunity. So we’re going to be using it for drilling at Wassa. We’re going to be looking at Father Brown and some of the capital expenditures that might be required there. The tailings as Sam mentioned, additional equipment that’s required either in the mill or maybe some mobile that we don’t finance through our existing equipment financing facility. So it’s a tremendous facility that gives us that flexibility to look at Wassa in different ways, and to optimize the way we want to mine it.
Andrew Breichmanas – BMO Capital Markets: Then last question, just could you remind me what the cost targets for the year are?
Jeff Swinoga – EVP and CFO: Yeah, the cash operating costs per ounce targets are $1,050 per ounce and $1,150, between those two. You see with the $1,078 per ounce we have for this quarter, we’re doing fine.