Golden Star Resources, Ltd (GSS)

GSS 
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Golden Star Resources (GSS)

Q1 2013 Earnings Call

May 09, 2013 11:00 am ET

Executives

Belinda Labatte - Principal

Samuel T. Coetzer - Chief Executive Officer, President and Director

Jeffrey A. Swinoga - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Paolo Lostritto - National Bank Financial, Inc., Research Division

Andrew Breichmanas - BMO Capital Markets Canada

Robert Reynolds

Presentation

Operator

Greetings, and welcome to the Golden Star Resources Q1 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Please note, this call contains forward-looking information. Please refer to the company's statements regarding forward-looking information in the company's Form 10-K, filed March 4, 2013. The call will begin now. It is now my pleasure to introduce Belinda Labatte, Investor Relations representative for Golden Star Resources. Thank you, Ms. Labatte, you may begin.

Belinda Labatte

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Golden Star Resources' first quarter 2013 financial results and an operational update. Yesterday, we filed our financial statements and these are available on the company's website at www.gsr.com.

On the call today is Sam Coetzer, President and CEO; Jeff Swinoga, Executive Vice President and Chief Financial Officer; Daniel Owiredu, Executive Vice President, Operations; Bruce Higson-Smith, Senior Vice President, Corporate Strategy; and Dr. Martin Raffield, Senior Vice President, Technical Services.

Sam and Jeff will discuss the financial results for the first quarter 2013 and provide an update on operations. For those of you using the webcast presentation, I draw your attention to our forward-looking statements and our legal disclaimer on the webcast presentation. Sam?

Samuel T. Coetzer

Good morning, all, and thank you for joining us today. I'm pleased to discuss the financial highlights for our quarter ended March 2013, along with an update on operations, explorations and planning for 2013. I'll then hand the call to our CFO, Jeff Swinoga, for details on changes in our financial condition.

Our first quarter was defined by predetermined activities, which front-loaded the fiscal year with high expenditures. Today, in the review, you will see how that unfolded. With the current gold price environment, we are now facing a different set of circumstances from the beginning of the first quarter. And we are being responsive to these changes and how they impact both our short-term planning and long-term strategy.

We, like other gold producers, have concerns on the current weakness of the spot price for gold, which cannot sustain investment in the sector and can lead to mine closures. These are concerns we have not only for Golden Star, our shareholders and our employees, but also for the sector and its suppliers.

So with moderated expectation on the gold price, we are adjusting all our plans for 2013 and remain committed to our strategy of reducing operating costs within Golden Star, which is now even more pertinent and necessary.

I previously stated on becoming CEO that my focus was to install a thoughtful and disciplined planning process into the operations. And today, I recognize the importance of providing a plan that allows for the evaluation of gold price scenarios in the range of $1,200 to $1,600 per ounce versus what our 2013, 2014 plans was assuming, a $1,600 gold price.

The regional 2013 capital plan required most of the capital to be spent at Bogoso, which as I've stated before, will be funded through the Wassa operations. The investments included into the Pampe pit, the Chujah and Bogoso North pushbacks, and the upside block.

In response to the recent substantial decline in gold prices, we are now re-optimizing our pits, reviewing all our operating mine plans, reviewing the capital spending plans and evaluating the viability of Bogoso and Prestea.

Based on this preliminary review and due to the technical issues affecting the Bogoso's Pampe pit, the company has suspended the Bogoso and Prestea non-refractory operations due to insufficient supply of ore from the Pampe pit. This has been caused by geotechnical issues resulting in more failure. Therefore, the mining of the Pampe pit under current market conditions is considered not viable. This suspension will result in a reduction of approximately 35,000 gold ounces of production in 2013.

As a result, the company's 2013 gold production estimate is now under review, and the company plans to issue the revised production and cost guidance and capital spending estimates for 2013 based on this decision and the results of the company's review efforts.

In reporting our first quarter results today, there are, as I expected and as anticipated, for us, $1,600 gold price environment. The high expenditures, for example, anticipated pushbacks, contractors to assist us in fast-tracking a certain project, increased drilling at Wassa, moving the Dumasi expenditure forward and relocating our head office, should be looked at in the context of our longer-term strategy to move our operations to high-grade ore and lower-cost operations.

In the first quarter, we produced to 81,000 ounces of gold in total, a 4.7% increase with a 30,495 ounces from Bogoso operations and 45,000 -- just under 46,000 ounces from the Wassa operations. Unfortunately, the SAG mill maintenance extension at Bogoso deferred production into the second quarter, resulting in a lower Q1 production. Revenues were up slightly at 1% from the last quarter to $133 million generated the past quarter.

Cash operating cost balance has remained relatively stable on a consolidated basis from $1,118 to $1,124 per ounce this quarter, which was driven really by excellent performance from our Wassa operation. Operating cash flows before working capital changes decreased from $21 million to about $4.5 million year-over-year. This was largely the result of an increase in operating cost at Bogoso and Prestea, and the tax payment related to the Wassa/HBB operations.

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