Golden Star looks to get back on track

Golden Star Resources (GSC-T, GSS-X) recently reported an initial resource estimate for its new Buesichem South deposit in Ghana, days after posting lower operating results for the second quarter.

The company says the pit adds about 378% or 500,000 oz. gold to the Buesichem deposit. The measured and indicated resource grew to 134,000 oz. (1.5 million tonnes grading 2.64 grams gold per tonne.), while adding 497,000 oz. (5.3 million tonnes at 2.92 grams gold) in inferred.

The revised estimate is constrained within an optimized pit shell and based on a gold price of US$1,100 per oz.

At the end of 2009, before the discovery, Buesichem had a measured and indicated resource of 950,000 tonnes at 2.68 grams gold for 82,000 oz., with another 460,000 inferred tonnes at 3.40 grams for 50,000 oz.

Buesichem South sits 300 metres south of the active Buesichem pit, which is some 6 km south of the Bogoso processing facility. The company describes mineralization at Buesichem South to be hosted within a sheared graphitic zone with disseminated arsenopyrite and pyrite.

Company’s investor relations manager Anne Hite says the southern deposit may be linked to Buesichem. “We are doing infill drilling, and as we continue to drill on a closer spacing (of 25 metres), it turns up that it might just be connected. We didn’t think it was in the past.”  

The company discovered the south pit last March, and has punched another 62 holes or 14,700 metres on a 50-metre by 50-metre spacing since.

Buesichem has been around since the 1930s and seen about 20 years of production, before the company acquired it in 2001, as part of the Prestea mining lease acquisition. Golden Star fed oxide ore from the pit to its Bogoso oxide plant for almost two years.

It started sulphide ore mining in May 2006, and recovered some 500,000 oz. gold. But, with Buesichem South, the junior says the deposit could produce above 1 million oz.

However, for the second quarter, Golden Star produced 14% less than the earlier quarter, or a total of 72,541 oz. from its Bogoso/Prestea and Wassa/HHB mines.

Hite says the lower production was a result of high rain falls which affected the geometry configuration of the pits.

“We had unusually high rain falls during the second half of 2010 that caused our pit sequencing to get out of sequence. So, right now we are busy mining higher waste to get our pits back on track.”

She adds the pits become narrower the deeper you go, which makes it harder to operate in wet conditions. “So, we couldn’t keep up with the rainfall to keep those pits dry, so we had to abandon some of them… Because of that, we got off sequence with our other pits.”

Also, for the quarter the cash operating costs increased by 10% to US$1,080 per oz.

The company says this was due to mining 32% more waste to return its Bogoso North and Chujah pits to design.  

For the full-year, the company estimates producing 331,449 oz. at cash costs of US$975 per oz.

Analysts at Macquarie wrote in a July 26 note that “GSC continues to have challenges in achieving consistent production at reasonable cash costs at Bogoso and Wassa.” It maintains a “neutral” rating on the stock with a target price of $3 per share.

Hite says the first priority for the company is to get the pits back on sequence and lower its cash cost. Golden Star plans to improve costs by producing more ounces from a higher amount of fresh ore and an optimal blend of transitional ore.

Golden Star recently traded at $2.80. It has a 52-week trading range of $2.14 (July 1, 2011) and $6.01 (Nov. 8, 2010).