Golden Star rises on resource update, Q3 earnings

Shares of Golden Star Resources (TSX: GSC; AMEX: GSS) have gained some shine after the miner posted a third-quarter earnings beat followed by a resource update at its Wassa gold mine in Ghana.  

The resource estimate for the mine’s Wassa Main pit shows indicated gold ounces increased by 45% to 2.6 million oz. from 46.4 million tonnes averaging 1.75 grams gold per tonne. The update includes 269 new holes totaling over 93,000 metres that Golden Star finished drilling this June.

Wassa Main is one of the two operational pits at the Wassa gold mine, with the other being the Father Brown pit. Indicated resources at Father Brown, which were not updated, stood at 280,000 oz. gold from 2.5 million tonnes grading 3.43 grams gold as of Dec. 2012.

The miner is currently examining the possibility of mining a higher grade portion of the Wassa Main resource using underground methods to improve the overall project’s economics. It intends to kick off a new infill drill program on the deeper high grade zone to further define the continuity and geometry,” Sam Coetzer, the company’s CEO, said in a statement.

The update helped lift the stock up 11%, or 6¢, to close Nov. 7 at 59¢. Earlier this week, the Toronto-based company gained 6% to end Nov. 4 at 53¢ on its third quarter results. It reported adjusted earnings per share of US2¢, beating the consensus of a US3¢ loss per share.

“The difference appears partly due to lower operating costs but more so as a result of lower depreciation charges following US$169.6 million of impairments in Q2/13,” commented BMO Nesbitt Burns analyst Andrew Breichmanas.

Golden Star managed to bring the quarter’s consolidated cash operating costs to US$960 per oz., an 11% decrease over the second quarter. Further to the delight of its shareholders, it hiked up its full-year production guidance to 325,000–330,000 from 290,000–310,000 oz.

But Breichmanas, who has an “underperform” rating and US50¢ target on the stock, remains cautious. “The reduction in cash operating costs and increased production guidance are encouraging,” he says. “However, with higher-grade ore sources at the Wassa operation depleting, maintaining profitability at lower gold prices appears difficult without significant capital investment to advance new projects,” he argues.

The Wassa gold mine has a single non-refractory processing plant including a carbon-in-leach system with a capacity of 2.7 million tonnes per year. Gold Star recently optimized the mine’s pit shells based on a gold price of US$1,100 per oz. During the third quarter, the Wassa mine reported total sales of 44,830 oz. gold, down from 50,774 oz. in the second quarter due to lower gold grades primarily at the Father Brown pit. Revenues from Wassa as a result dropped 18% over the quarter to US$59.5 million as the cost of sales and operating costs escalated.

But the company’s Bogoso gold operations, located 35 km from Wassa, made up for Wassa’s less than stellar performance. Bogoso recorded total gold sales of 44,095 oz., a 28% increase over the June quarter. This pushed up the mine’s revenue by US$10.1 million to US$58.7 million, as more ounces were sold, offsetting the 6% quarter-on-quarter lower realized gold price of US$1,329 per oz. 

Total gold sold in the quarter was 88,925 oz., a 4.5% improvement over the second quarter. Year to date the company has produced 255,377 oz.

The Toronto-based producer is also working to reduce its costs by US$45 million this year. To date, Golden Star has achieved half of these savings and looks to continue its cost cutting efforts in the fourth quarter.