Golden Star reports US$36.4M loss for 2007

Despite a 43% increase in revenues and record gold production from its Ghana operations in 2007, Golden Star Resources (GSC-T, GSS-X) reported a net loss of US$36.4 million.

Golden Star, which set a record for gold production, sold more than 246,000 oz. gold last year from its Bogoso, Prestea and Wassa mines, up from about 201,000 oz. gold in 2006.

In a statement, Golden Star president and CEO Tom Mair noted that production was up even though the company experienced startup problems with the Bogoso sulphide processing plant, power issues in Ghana and higher cash costs. Mair said he was anticipating improvements in 2008.

“We expect ongoing optimization of the Bogoso sulphide processing plant to contribute to the improved bottom line results going forward,” Mair said. “Many of the challenges we faced in 2007, including countrywide power restrictions in Ghana, appear to be behind us.”

Cash operating costs at Bogoso jumped US$354 per oz. to US$766 per oz. in 2007,which had an impact on company-wide cash costs which averaged US$602 per oz., an increase from US$442 per oz. the previous year.

The company saw startup problems at the newly built Bogoso sulphide processing plant at mid-year because of lower ore grades, permit delays for the Pampe pit, and a shortage of oxide ore for the oxide plant.

During the fourth quarter, the company experimented with sending sulphide ore through the oxide plant — dubbed SINOX or “sulphide in oxide plant.”

Investor relations manager Anne Hite says this could give the company an option for increasing production once all of its oxide ores are depleted.

Hite says the sulphide ore was sent through the oxide plant twice to process it.

“I don’t know if anybody’s been doing it or if we’re the first,” Hite says.

She says the results were positive but the company does not have any conclusive recovery rates. She says no decisions had been made on whether the method would be used.

“We’re still testing it,” Hite says. “It’s still a new process and until we have a better handle on it I would be hesitant to give you any erroneous data.”

All of this resulted in Bogoso’s operating margin loss of US$23.9 million for 2007 compared with a positive operating margin of US$8.4 million a year earlier.

A major drought in Ghana over 2007 also caused problems for the company. The lack of rain meant nationwide power restrictions until October, which prompted Golden Star to rethink its dependency on the national power grid.

The company teamed up with three other mining companies to construct a 100-megawatt power plant.

Golden Star also entered a take-or- pay agreement with a power provider that plans to build a 20- megawatt power station at the Bogoso site, allowing the company to generate enough power for itself in the event of any future shortages.

Last year wasn’t all doom and gloom for Golden Star.

The company’s Wassa mine improved in 2007, achieving an operating margin of US$9.6 million compared with an operating margin loss of US$800,000 in the previous year.

Production increased to 126,000 oz. gold from about 98,000 oz. while cash costs decreased to US$465 per oz. from US$493 per oz. in 2006.

In October, Golden Star began building a 52-km road to link its Benso property to the Wassa processing plant. The company plans to start hauling ore from Benso by the third quarter of this year.

A road to another Wassa satellite deposit, Hwini-Butre, should be built by 2009.

The deposits have combined reserves of 4.13 million tonnes grading 4.35 grams gold per tonne for 577,000 oz. gold.

Total reserves for the company increased by 780,000 oz. gold, or 19%, in 2007. Reserves now stand at 62.3 million tonnes grading 2.46 grams gold for 4.93 million oz. gold.

Much of the reserve increase was a result of upgrading resources, which have decreased. Measured and indicated resources stand at 23.2 million tonnes grading 2.59 grams gold per tonne while inferred resources are pegged at 20.2 million tonnes grading 3.68 grams gold per tonne.

The company spent US$13.9 million on exploration in 2007, down from US$15.3 million a year earlier. Most ofGolden Star’s drilling is done close to its operating mines. The company completed an airborne geophysical survey and plans to drill the targets it identifies in 2008.