Higher mining and processing costs associated with transitional ore at the Bogoso-Prestea mine in Ghana cut into
During the three months ended June 30, the company earned US$1.1 million (or US0.8 per share), down 72% from the US$4 million (US4 per share) it earned a year earlier. Sales between the two periods rose by US$3.8 million, to US$16.5 million. For the first half of 2004, Golden Star’s earnings were off 21% at US$6.3 million (US5 per share), while revenue rose 30% to US$36.4 million.
The company’s first-quarter gold production from Bogoso-Prestea amounted to 38,805 oz., with a realized price of US$399 per oz., compared with 36,042 oz. a year earlier sold at US$347 per oz. For the half-year, production increased by about 10% to 86,007 oz.; the company’s realized price jumped by US$53 per oz. to US$404 per oz.
The increase in production during the first half reflects an increase in average feed grade and a decrease in gold-in-process inventory, as the operation began leaching concentrate only instead of whole ore.
Cash operating costs in the recent quarter climbed 32% to US$251 per oz., and by about 18% to US$213 for the first half. The increases reflect the mining and processing of harder, more metallurgically complex transitional ore. Costs are expected to fall by about 10% during the second half of the year as commissioning of the new flotation circuit nears completion.
The Bogoso plant’s new flotation circuit, which is designed to improve gold recovery from sulphide and transition ores, was up to design capacity by quarter’s end. In all, the operation milled 421,289 tonnes of ore running 3.5 grams gold, and averaged a recovery rate of 63.8%.
Meanwhile, expansion plans at Bogoso-Prestea continue. An environmental impact statement for the 1.5-million-tonne-per-year Bondaye carbon-in-leach plant has been submitted. Initial permits are expected during the third quarter, with construction beginning immediately thereafter, and wrapping up in mid-2005. The company is refurbishing a used plant acquired in 2003.
The US$17-million plant will process ore from the Beta Boundary pits, as well as deeper sulphide ore from the Plant-North pit. Proven and probable reserves at Plant-North total 9.9 million tonnes grading 3.1 grams gold per tonne. Plans also call for upgrading Bondaye with a bio-oxidation circuit in 2008 to handle deeper sulphides from the Beta Boundary pits. Bondaye is expected to produce about 120,000 oz. gold per year at an average cash cost of around US$200 per oz.; recoveries are pegged at 82%.
The additional processing capacity will see the mining rate at Bogoso-Prestea doubled, and requires an upgrade to 95-tonne trucks and larger loading equipment at an estimated price of US$27.5 million. A $25-million, 5-year term facility has already been arranged, and is secured against the fleet.
Golden Star plans to convert the Bogoso plant to bio-oxidation to process refractory sulphides from the Bogoso concession. Engineering design and environmental work will begin later this year; construction will start early next year, with completion planned for the end of 2005. The project carries a US$25-million price tag and is expected to generate recoveries of 82-88%.
Meanwhile, commissioning of the processing plant has begun at the fully permitted Wassa gold project, 35 km east of Bogoso-Prestea. That plant is slated to hit full capacity in August, with commercial production attained by quarter’s end. At full steam, in 2006, production is projected at about 140,000 oz. gold per year at a cash operating cost of US$200 per oz.
Initially, Wassa will process crushed heap-leach material left over from the previous owner; that material averages 0.7 gram gold and is situated within the footprint of the tailings dam. Limited open-pit mining will begin in the fourth quarter. Gold recovery from open-pit material is pegged at 92%, and 80%-96% for heap-leach material.
The plant will provide its own power until connection to the national power grid is completed in the fourth quarter. The existing plant will remain as a standby power supply.
Based on 12,000 metres of reverse-circulation drilling during the first half of 2004, total probable reserves at Wassa have been boosted by 25% to 19.7 million tonnes running 1.3 grams gold, including 4.2 million tonnes of heap-leach material averaging 0.66 gram gold. The estimate employs a gold price of US$325 per oz.
Golden Star owns a 90% interest in the Bogoso-Prestea open-pit gold mine and nearby Wassa gold mine; it also holds 81% of the currently inactive Prestea underground mine.
Iamgold offer
On the takeover front, Golden Star’s CEO, Peter Bradford, says he expects a successful conclusion to his company’s tender offer for all the shares of
“We have no intention of extending our offer beyond August 16th,” says Bradford. “If we see something that is clearly superior to ours — and quite frankly we haven’t seen the additional value in Iamgold that would warrant an increase to our offer — we would expect to withdraw.”
Golden Star’s bid stands at either 1.25 of its shares or 1.15 shares plus 50 for each Iamgold share. “We have not seen anything during the due diligence to support an increase in our offer,” says Bradford, “and we doubt anyone is going to put an offer on the table that can deliver the same intrinsic value to Iamgold shareholders as what we’re offering. Don’t let me get in front of what our board might decide to do at the time, but I certainly wouldn’t be recommending that we stay on the stage any longer. In the face of a superior bid to ours, we would prefer to stick to our knitting, which is exploring for and making gold.”
Golden Star’s offer also includes another 20 per share, provided there is no break fee payable owing to the failure of the merger plans between Iamgold and
Details of the break fee payable to Wheaton River should Golden Star acquire Iamgold are still unclear, but Bradford assume his company would be on the hook for the estimated $24 million. Bradford figures that if Coeur were also successful in acquiring Wheaton within the next nine months, the break fee would become payable to Iamgold.
Iamgold has steadfastly rejected Golden Star’s bid, calling it “inadequate from a financial point of view.” The takeover target also recently said it plans to unveil its preferred suitor from among a group of up to four potential bidders currently wrapping up due diligence.
Based on its closing share price on Aug. 6, Golden Star’s offer translates as about $6.31 per Iamgold share, or nearly a dollar lower than its target’s trading price. Golden Star’s bid expires Aug. 16.
Looking ahead, Bradford says Golden Star is on track to meet its gold production target for 2004 of between 185,000 and 210,000 oz. “Our three development projects are now moving on schedule and budget,” he says, “and we should be producing at an annualized rate of 350,000 oz. in the second half of 2005, and well over 400,000 oz. in 2006. That’s a 100% increase over 2004.”
At quarter’s end, Golden Star had US$85.8 million in cash and equivalents; debt had increased to US$1.4 million from US$800,000.
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