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 preliminary operating results for the second quarter.

Buesichem South sits 300 metres south of Buesichem, which is 6 km south of the Bogoso processing facility. 

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

The estimate is constrained within a 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 gold for 50,000 oz.

The 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 out 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 since drilled another 62 holes, or 14,700 metres, on a 50-by-50-metre spacing. 

The company says mineralization at Buesichem South is hosted within a sheared graphitic zone with disseminated arsenopyrite and pyrite.

The main Buesichem pit was discovered in the 1930s, and saw 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 500,000 oz. gold. The company says the deposit could produce above 1 million oz. with Buesichem South.

Meanwhile, Golden Star produced 14% less during the second quarter than it did in the first, with a total 72,541 oz. from its Bogoso-Prestea and Wassa-HHB mines.

Hite says the lower production resulted from high rainfall, which affected the geometry configuration of the pits.

“We had unusually high rainfalls 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 became narrower at depth, which made it harder to operate in wet conditions. “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.”

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

The company says this increase resulted from mining more waste to return its Bogoso North and Chujah pits to design.  

Golden Star expects to produce 331,449 oz. this year 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 in sequence and to lower its cash costs. Golden Star intends to improve costs by producing more ounces from a higher amount of fresh ore and an optimal blend of transitional ore, among other things. 

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).