Golden Star keeps faith in Guiana Shield

In the middle of a tough year, Golden Star Resources (GSC-T) is taking some solace in the St-Elie and Dieu-Merci gold projects, two exploration targets that hold the promise of becoming small-scale cash cows in French Guiana.

The company is active in the region through its 71%-owned subsidiary, Guyanor Ressources (GRL.B-T), which, until recently, had been exploring the St-Elie/Dieu-Merci and Paul-Isnard/Eau-Blanche concessions with partner Asarco (AR-N). In May, however, Asarco terminated its joint-venture agreement, in return for which it paid Guyanor about US$1 million.

Since 1995, Asarco had contributed US$7.2 million of the US$9.8 million that was spent exploring St-Elie/Dieu-Merci, and contributed about half of the US$8.2 million that was spent at Paul-Isnard/Eau-Blanche.

With Asarco out of the picture, Guyanor now has a 100% interest in St-Elie/Dieu-Merci and a 90% interest in Paul-Isnard/Eau-Blanche, with Paris-based LaSource holding the remaining 10% interest.

Says Richard Winters, Golden Star’s vice-president of corporate development: “It’s not a bad deal when someone comes into a joint venture, spends over US$11 million on your properties and then hands them back to you with a check for US$1 million. We’re quite pleased with that.”

Asarco’s departure has given Golden Star the freedom to focus on profiting from the supergene enrichment that occurs in the lateritic profile of the St-Elie/Dieu-Merci concessions. The enrichment expresses itself in the so-called “mushroom effect,” whereby near-surface material is enriched in gold by the leaching of other elements. The simple planar geometry and low work index of the enriched layer renders it an attractive candidate for low-cost strip mining.

“If our expectations, in terms of grade, are met at St-Elie/Dieu-Merci, we could justify mine development at current gold prices,” says Winters. “We wouldn’t make a whole lot of money as we repay the capital over a 5-year period, but, after that, even a small 75,000-oz.-per-year mine, in and of itself, could internally fund our exploration programs. Golden Star needs US$10-15 million per year to do the kinds of things we feel comfortable doing, and that’s what St-Elie/Dieu-Merci potentially can give us.”

The 9,900-ha St-Elie concession, acquired in 1993, is 110 km west of Cayenne in a remote, undeveloped region of north-central French Guiana. Within the St-Elie concession are six mineralized zones: Michel, Chemin-de-Fer, St-Auguste, Pactole, Sable Jonquement and Devis.

At the most explored zone, Michel, the open-pit mineralized inventory stands a 1.4 million tonnes grading 4.2 grams gold per tonne, whereas the total geologic mineralized inventory is 3.3 million tonnes of 3.3 grams gold. The figures are based on 53 diamond drill holes totalling 7,632 metres, as well as auger holes and trenches.

In February 1997, through a now wholly owned subsidiary, Guyanor was granted a 4-year option to acquire a full interest in the 15,500-ha Dieu-Merci concessions, which lie immediately east and south of the St-Elie concession. At Dieu-Merci, the zones of interest are Kerouani, Virgile, Ovide, Cesar, Quartz and Devis-Sud, and these cover a 0.2-gram gold-in-soil anomaly that extends over a 3-sq.-km area.

Last year at Kerouani, an augering program delineated a resource of 630,000 tonnes grading 3.9 grams gold in the top 5 metres of a 300-by-300-metre area.

Currently, a hollow-stem augering program totalling up to 2,500 metres is targeting the Kerouani and Cesar zones. The entire Dieu-Merci near-surface evaluation program, scheduled to be completed early next year, will involve about 13,000 metres of augering to an average depth of 15 metres. By early 1999 at Dieu-Merci, preliminary metallurgical tests will have been completed and Golden Star should be able to calculate a resource estimate.

Meanwhile, at the Paul-Isnard and Eau-Blanche properties, about 200 km west of Cayenne, Golden Star has recalculated its Whittle-pit mineralized inventories to 4.6 million tonnes grading 2.6 grams gold, down from 16.3 million tonnes at 2.5 grams reported in February. At the same time, the geologic mineralized inventories were recalculated to 34.7 million tonnes at 1.4 grams gold, up from a May estimate of 28.6 million tonnes at 2 grams. The company says the new estimates better reflect the wide spacing of drill hole information over the 3-km strike length of the Montagne d’Or volcanogenic massive sulphide (VMS) deposit. Golden Star still maintains that the deposit shows strong evidence of continuity.

The Paul-Isnard recalculation lowers Golden Star’s total attributable reserves and open-pit inventories by 8.2 million tonnes — to 43.7 million tonnes grading 1.8 grams gold from 51.9 million tonnes of 1.9 grams. For Guyanor, the new figures amount to a reduction in attributable open-pit mineralized inventory tonnage by 11.7 million tonnes — to 14.6 million tonnes grading 2.3 grams from 26.1 million tonnes of 2.4 grams. Geologic inventories for both companies remain little-changed, with increased tonnages offset by decreased average grades.

This past year, surface and down-hole electromagnetic geophysical surveys have been carried out over portions of the Montagne d’Or deposit. Also, about 1,200 metres of diamond drilling were recently completed, bringing the total drilling at Paul-Isnard to 9,300 metres in 48 diamond drill holes plus another 1,800 metres in 866 auger holes.

At Paul-Isnard, exploration has been temporarily suspended as Golden Star reassesses the deposit and seeks a new joint-venture partner. From a geological point of view, Paul-Isnard is significant. Says Jean-Francois Sauvage, Guyanor’s director-general: “This is the first VMS deposit discovered in the Guiana Shield, and there’s no reason to believe it is the only one.” He adds that the drilling has probably not been in the proximal zone, and that “now we have to understand [how] to get there.”

Elsewhere in French Guiana, at the Yaou-Dorlin gold properties, equal partners Guyanor and Cambior (CBJ-T) are completing a prefeasibility study that is due in January, while, at the Dachine diamond property, Golden Star is involved in discussions with potential exploration partners.

Overall, Golden Star is coming out of a painful process of contraction. The company has, in the past year, laid off almost 400 people, including more than 50 geoscientists, predominantly in South America.

The company now employs 266, though more layoffs are expected as Golden Star strives to reduce its burn rate to a level below US$700,000 per month.

“In 1996, we were the ninth-largest gold-exploration outfit, in terms of non-mine-site exploration,” says Winters, noting that during that year, Golden Star had operations in 11 countries and, together with its partners, spent about US$40 million on exploration. “You do not change a multinational exploration company overnight into something that’s focused on five projects,” Winters continues. “We’ve done a lot of that, but we’ve still got room to go. As we continue to address costs and restructuring, we’ll be seen as less of a high-maintenance company, but right now, we have the kind of internal structure and infrastructure that was meant for significant multinational exploration.”

He adds: “Even though times have been extremely tough in terms of the gold sector, we have continued to build our assets and the ounces in the assets. Those ounces will be revalued. From that perspective, Golden Star is just a leverage play on gold. The question for companies such as ours is, Will we ever get the blue-sky premium again that we got a couple of years ago?”

Over the past 13 years, Golden Star has emerged as the pre-eminent junior exploring for and developing gold and diamond deposits in the greenstone belts of the Guiana Shield. Not only has the company gained technical expertise in bringing modern exploration techniques into remote and hostile terrain, it has learned how to deal with region’s government bodies, legal regimes, land-title systems, languages and cultures.

While most of its advanced projects have been in Guyana, Sur
iname and French Guiana, Golden Star is also eyeing opportunities in Brazil.

“Because of its size, Brazil offers a lot of potential right now,” says Carlos Bertoni, the company’s vice-president of exploration, who notes that the occupancy tax in Brazil was raised last year to almost US$1 per ha annually. “It’s becoming very expensive to sit on properties and it’s forcing everyone to review their portfolios and either abandon them or try to do deals,” says Bertoni. “There is a very intense property offering going on in Brazil, particularly in the northern state of Amapa, which has a direct continuity with the geology of French Guiana across the Oyapok River. So that will be one area of Brazil where we can directly apply our experience in the Guiana Shield.”

For the second quarter ended June 30, 1998, Golden Star recorded a net loss of US$1.2 million (or US4 cents per share), compared with a net loss of US$7.5 million (US25 cents per share) for the second quarter of 1997, when the company recorded US$6.1 million in property write-downs.

As of June 30, Golden Star had no debt and about US$11 million in cash and short-term investments.