Q3 2021 Golden Star Resources Ltd Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Golden Star Resources' third quarter 2021 results conference call.
At this time all lines are in listen only mode and following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Tuesday November 2nd 2021, I would now like to turn the conference over to Mr. Michael Stoner. Please go ahead.
Thank you very much Kelsey and thank you everyone for joining us for all Q3 2021 results call, where we will obviously also address the transaction that we announced yesterday morning.
I'm on slide two I'd like to point, you to the disclaimer, particularly on forward looking statements.
The presentation is available on our website that will leave you to read that in your own time.
On the call I'm joined by Andrew Wray, Our CEO Graham crew our CLO.
Thompson.
And then Mitch Russell, who is our VP exploration.
And with that I will hand over to Andrew to take off to cool. Thank you.
Thank you very much Michael and Hello to everybody.
Ill start on slide four.
Very briefly this is a reminder of what and where we are as a business.
Together, there with the current and future plans for Wassa.
Moving on and as Michael mentioned on slide five there before we get into the Q3.
Overview and results.
We should really talk about yesterday's.
<unk>, where we announce that Shifang gold.
Is acquiring Golden Star in an all cash offer.
At $3 91 U S per share.
Which equates to.
The value for the business of approximately 470 <unk>.
In U S dollars.
She found.
For those that are not familiar and establish.
Mining operator.
Listed in Shanghai market cap of $4 three.
In the U S.
They currently operate five assets for those in China and then.
The support and mining lost quite a few years ago from LNG.
There is no financing condition on this transaction just to.
Make that clear.
In terms of the timeline you can see that we're expecting January side, probably mid January we expect at this point in time.
In terms of the likely closing of the transaction.
Once we got through various approvals.
Approvals shareholder approvals regulatory approvals and other conditions met.
In terms of those approvals beyond the shareholder approvals I think the key ones ready to mention.
In Ghana, there'll be the no objection approval so from the minister.
Uh huh.
That.
The transaction to proceed.
And then the three separate regulatory approvals that chiffon.
We're already working on in China, which is the standard ones for dealers.
This nature.
Will come.
Come back to that I'm sure when we get to Q&A, but that just gives you an overview of the transaction itself you can see what that value equates to in terms of the various premia to different points in time.
And as I said, we're happy to take questions on that once we've gone through the Q3 results.
Moving on to slide six on those results.
I think our overall.
Overall pretty solid quarter for the business no real surprises the results fairly much in line with our expectations.
Graham will talk a little bit more about the operations and the key focus areas that we're in.
What that means in terms of financials in the balance sheet, but.
The key feature of radio.
Above and beyond the on the ground run of mine, it's the continued processing.
The low grade stockpiles.
Which we use to offset some of the lower volumes in terms of underground material.
We continue to invest in terms of our Caf II program in the business for that future growth from Wassa.
Some good in mine exploration results have met you talk a little bit.
About later on.
Some further optimization of the balance sheet during the quarter.
And then on the paste fill rethought and commissioning Graham will give a little bit of detail around how that process is progressing.
Moving on to slide seven in terms of health and safety.
I think the real focus that continues to be managing COVID-19 and we've certainly seen a noticeable uptick over Q3 in cases in case rates, both where we are in the western region in Ghana, as well as a country as a whole.
But the screening protocol as we've got in place.
Helped us to capture most of that.
Also minimize the impact on operations of recycling a little bit previously about some of the ex Pat Jumbo operators, which as it says here we addressed in the second quarter Bye.
Bringing in more.
More operators more on iron ore prices have you get round that problem in terms of some of the travel inconveniences and barriers and we've seen.
Progress on the development rights during the quarter, which is encouraging.
And then just one final one from me before I hand over to Graham in terms of the outlook.
The message is really with those results and just the fourth quarter to come very much on track to deliver on guidance for the full year.
So with that I'll hand over to Graeme to give more detail on the operations.
Thanks, Andrew.
Moving to slide 10.
Just a little bit more information on the paste backfill system commissioning.
Thank you Ron.
Now that we suspended that back.
Back in Q1, the thing going on doing test work with.
The group called <unk> services in Australia.
<unk>.
The advance of technology in Ghana.
The testing what has gone well.
We have we moved on to filling a second test using the maximum cement percentage, which is 10%.
That was completed during October and we've got a set of 'twenty I test results, which shows that it's meeting the design criteria.
At that slightly higher percent of cement.
And we're continuing the casing really processes, if theres any deliberate action now after 56 Liberal side you identified some alternative binder.
Those that are available in country and like moving on so now during this quarter were maybe last one and I'll, let Ted started.
Using an alternative flight or a bond with.
Yes. Thank you just flagged by spot within that.
So that showing really good results at the lab level. So I'm looking forward to running that through the plant and then when we should be.
Full production for 2023.
Now moving on to the quarter as Andrew touched on.
Or four tons were down a little bit.
Restricted.
As we mentioned when we when we talked about the revised plan for the second half a little bit restricted on available mining areas.
Sorry.
Around 3700 tons per day.
A little little bit, it's a great benefit light in the quarter, we did some work on.
And pillar recovery backup in panel, one that helped us to glide light in the quarter.
So that was that was pleasing result to see that development as Andrew said.
Continued improvement.
For what we've seen that so still more work to do to build our development inventory and increase flexibility, but with that and obviously the high school.
<unk> coming on things.
Things are looking.
In a better position for 2020.
And the total production there that you can you can say.
On the cost side, obviously the reduced volumes.
Had an impact on the on the unit costs.
Processing costs supported by the low grade stockpiles as Andrew had mentioned.
And you can see the flow on effect of lower ounces and that continues.
Operating spend but importantly, the capital investment continuing moving.
Moving on to doing work on the <unk> license system.
And so while the capital investment side with the quarter size.
All in all increasing cost trend there bought on the back of some slightly lower production than we.
Having the original plan, but continuing to invest.
Just in terms of the upper mine drilling.
We put out a release on this we see some of the some of the area that we are planning to bring into the reserve we've been doing some infill drilling at <unk>.
There is not falling audits.
Right.
Parts of that area of the ore body that we previously had not and bauxite. That's looking really positive for the upper mine area as we as we make sure that drilling program.
And with that I'll hand over to Paul to talk about the financial results.
Thank you Graham.
Slide 15, please so.
Q3, 2021, it's been a solid quarter for Golden Star, So just to put things into context comparing to.
Q3, 'twenty 'twenty.
That quarter last year can be considered as more of an exceptional quarter due to primarily two factors. So the gold price in that quarter was essentially an all time high so.
During that quarter, we actually realize the spot price average of 1961.
With an average total post the incorporation of the stream of 18 therapy.
The other thing to know is the underground mining rate was very high we almost had 5000 tonnes per day.
So looking at Q3 this year so in accordance with the 2021 restated guidance that we issued in June 2021, we always expected that in production in this quarter.
I'm pleased to say that our site team has worked really hard to actually deliver production with a significant contribution being made from the stockpile.
Turning to the financial performance so.
Despite slightly lower gold ounces sold so we so 34000 ounces Q3 was a reasonable quarter from financial perspective.
With respect to the macro environment and the strong gold price the business realized an average price of $17 53 per ounce or $16 76.
Of course, the impact of zero growth stream.
And resulted in revenues of $64 $3 million.
Mine operating profit was $19 5 million.
Of note as Graham alluded to the cost of sales have increased by 18% due to a combination of factors. So thats higher drilling costs processing little more low grade material from the stockpiles and the cost pressures being expect being am experience, sorry, and the broader industry. So these primarily relate to.
Labor few consumables.
We experienced higher drilling costs due to the rescheduling of the mine plan during the quarter.
And that and that relates to grade control drilling.
If we turn to depreciation this is increased in comparison to the prior year.
Water due to completion of a number of capital projects in 2020 in 2021. This obviously has an impact on earnings but not in the cash flow.
The gain in the fair value of derivative financial instruments was <unk> seven.
$7 million. So this release the gain in the quarter and the hedge positions, which again is a noncash item.
Turning to the adjusted EBIT that was $21 $2 million.
So there's a number of adjustments to EBITDA, which were included in the other expenses capped a great and these relate to two items, primarily so firstly, there's a noncash allowance recognized in the deferred consideration for the prestige disposal of $13 $3 million and in aggregate that star RPT.
$9 million for 2021 year to date.
Secondly, there was a charge of $1 $1 million in respect of corporate development costs.
So turning to the adjusted net income attributable to shareholders that was $2 million.
Zero cents per share Brian did obviously.
This is a function of the following factors so with lower revenues due to lower sales ounces, which was driven by the lower production ounces.
And then there was obviously the lower realized price in comparison to Q3 2020 in terms of those record prices achieved.
There was an increased cost of sales for the direct mining cost as I mentioned for the low grade stockpile cost, which is which is noncash and then we've got the increased depreciation due to the higher to PC at higher depreciable asset base.
Then we had the FTR settlement as I mentioned in terms of the $13 $3 million de recognition loss.
Turning to slide 16 in terms of the balance sheet I'm pleased to report that we've continued to reposition the balance sheet to provide a stronger more robust base for the business.
Two key notable events during the quarter, firstly, the convertible debenture repayment and settlement in cash of $51 $5 million and secondly, we had a drawdown of the revolver credit facility from Macquarie. So, let's take the tool to.
Drawing on our CX to $90 million.
With these two actions, we've actually lowered the overall cost of capital and we pushed out the principal repayment profile.
So with the cash position at the end of the quarter being $55 million.
That position was 31 $9 million and this is all being done whilst investing $13 $3 million of total capex during the quarter.
This addresses the hedge program, we've got the hedge program in place, which delivers 12 five <unk> per quarter to the end of Q1 2024.
Floor price of $60 100, and the ceiling is probably circa 21 50 on average.
Which which provides a sensible window for the business going forward.
Turning to the next slide.
Our net cash flow bridge.
Cash management during the quarter was a key consideration for the business, particularly with the repayment of the convertible debenture.
So we started the quarter with $72 $7 million in preparation for the convertible debenture repayment and we ended the quarter with a healthy cash balance of 55.
Key things to note on the cash flow bridge.
For the quarter as follows so we've got <unk> operational cash generation of $10 6 million.
So there are continues to be capital investment to underpin the future development of Wassa. This is $11 1 million during the quarter.
Then we continue to invest in exploration with $3 $2 million being spent in Q3.
Just back to the financing activities. This reflects the convertible debenture repayment and settlement and then Macquarie facility draw down either.
At this point to know is that is it the ATM has not been used during Q3 'twenty 'twenty. One. So there are no ATM proceeds included within the financials for the quarter.
With that I'll hand over to Mitch who is going to run through the exploration and geology section, which takes us to slide 19. Please.
Thanks, Paul.
Slide 19, just as a brief overview of where we were focusing our exploration efforts in 'twenty. One the majority of the focus was up at the Wassa mining lease where we continue to test both up and down dip of the current reserves.
The guidance, we have is about $14 million Bucks.
Actually the forecast is probably going to come in a little bit under that we should be somewhere between 11 and $12 million for the for the year.
So let's proceed now over onto slide number 20.
Slide 20 is a longitudinal section of the Wassa deposit that shows the ISO show, which is in Radnor, which is a one five gram per tonne.
The dotted lines that you see both up dip and down dip or the areas of focus for 2021 drilling we've had success in both locations I want to haul. It was drilled in 2020 late 2020, where we intersected 18 meters at 3536 grams per tonne and we've actually gone in there with the underground drill rigs and drill.
50 meters to the north and 125 meters to the south on that one and actually have it drilled off to a density that we'll be able to include into the reserves after year end.
The uptake has been quite successful as well we've delineated a zone. That's roughly 100 125 meters along strike now with some new results coming in there.
Replicate the results from the previous call, which was 20 meters at $6 nine and 50 meters to the south we intersected 19 meters at $4 six to the north of that particular hole intersected. Several other zones that are looking interesting as well that will follow up with in 2020 with that drilling now.
Progressing over to slide number 21, just shows some of the near mine exploration targets outside of the Wassa main deposit itself.
You'll see up in the top.
The right hand side, the near mine stuff at mid Eastern Dead Mans Yell at me in the MH drilling that we did there we drove four holds up their intersected mineralization, where we anticipated.
As long as you're there did not intersect any high grade mineralization that we're looking for foreclosures up there one interesting section. We did do is the last since you see on that south at compare more the sac drilling it's on the lower left hand corner. There. The last sentence, we draw which is shown on this section off to the right hand side, there intersected mineralization about 112.
Meters down dip was last known mineralization there at about $8 three meters at four two grams per tonne.
Essentially the exploration programs are wrapping up for the year.
Are going to be concentrating on the upper mine drilling that.
Graeme pointed out there and that's going to be the main focus for the remaining part of the year on that I'll hand back over to Andrew just to give you a brief on the forecast a knee in the.
Back to you Andrew.
Thanks, very much Mitch so just finishing on slide 22, where you can see the focus areas for the business together with the longer term targets.
As I mentioned at the outset, some progress over quarter three.
The only other thing I'd finish almost not withstanding the news yesterday, everyone remains very focused on delivering to plan and the target for the year and beyond.
I'll hand back to calcium we can go to Q&A.
Thank you ladies and gentlemen, we will now begin the question and answer session. Sue do you have a question. Please press the star followed by the one and you touched on the phone.
You will then hear three pronged acknowledging your request and your questions will be pulled in New York at FERC.
Should you wish to decline from the polling process. Please press star followed by the Q.
If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Your first question does come from Bryce Adams from CIBC capital. Please go ahead.
Good morning, and good afternoon, and thanks for taking my question.
Firstly, the deal announced yesterday.
Premium to recent trading but it's also.
A decent discount to the peer followed early in the year. So what was your approach to balancing these two factors and why pursue a style.
There's a lot of value in the PGA that could could be realized.
Alright prices, Andrew let me I'll take that question.
In terms of the price and the deal price I think it's the same equation.
Look up with any level of interest in terms of trying to.
Assess the tradeoff between the long term delivery.
The risk long term delivery versus what is on the table today.
You saw the PAA does have potential to deliver a lot of value.
Although we are conscious that.
That's a few years out.
A fair bit of investment that needs to go in.
To deliver that and as you can see at the moment we were reinvesting.
The capital out of the business back into the business. So.
Reliance on gold prices holding up where they are.
So with that balance in mind and the price offered both to current trading as well as.
Some of the recent average levels, we've been trading at we felt that.
That offered a good opportunity to take to shareholders.
Okay I understood.
Secondly, the spread between our current trading levels and the deal process fairly well.
Fairly wide as you progress towards closing the transaction.
What do you see as the key risks here and did a somewhat explain the spread in the marketplace.
Yes.
Spread I think last night haven't seen where we're trading today. It was about 6% I think of the offer price.
And as you say, that's probably linked to views around some of the approvals required as I mentioned, there's no financing conditions. So I don't think there is an issue there.
It's perfectly looking to see how things progress in terms of the approvals in China, where the three main approval was required which are fairly standard ones.
And then the no objection approval and garner that typically comes at the end of the process and obviously shareholder votes as well so.
So as we go through I think people get a bit more comfortable potentially trades closer to the.
The deal price, but there's other people more expert than I am on that I mean, what I would say is that.
The dialogue, we've had with she found through the process.
Is that <unk> had positive feedback when labor approach the regulators in China to move ahead with the transaction and.
For deals of this nature.
Which.
Sure.
Fairly middle of the fairway transaction.
Theres not a lot of history of those being rejected by the Chinese regulatory process.
Having gone we've made sure that we've had a good level of dialogue throughout with the authorities. There so that theyre comfortable with what is happening what is planned and what they need to do as part of that process. So I think we've positioned ourselves as well as we can.
That respect and then the shareholder votes.
<unk> probably later in December so I think from my perspective, that's what I can say the market.
So in view of where it needs to trade.
We don't see a lot of risk in that.
Okay. Thanks, you mentioned no financing conditions.
But could you go through the language in the press release around the potential for a coke bottler goodbye acquiring 38% of the Golden Star shares whats driving that and I don't know if you can talk to it but what's the probability that she phone go with a partner or go it alone.
So the partner, they're referring to is a fund of the Bang so.
Some part of industrial bank.
So as a major Chinese bank.
The way I would look at that is it's effectively bank funding.
And there are some advantages to that particularly in terms of timing and approvals given the Shanghai exchange. They have a series of tests, which are a bit like the cloth tests in the U K, which trigger certain processes. If you go above certain ratios. So.
We are funding it this way it enables them to stay below some of those ratios. So there's benefits there, but it also means that they keep additional cash availability both.
Further investment into the business.
As well as other opportunities they may be looking at given I think there is some fairly ambitious growth plans on the side of chiffon, but from our perspective. The key was to ensure that announcement. This was fully funded by the cash resources that you found themselves and then they decide that it makes more sense.
To finance ultimately that way through the planned bringing on board of the funds then structurally that's very easy to do and potentially gives them a bit more flexibility and firepower.
Okay. So just for my understanding then.
The preference would be to go without the partner.
But it might be advantageous for the regulatory approvals.
No not anything I can really speak to them in terms of what their preferences are.
They've highlighted to us that they may decide to go this direction I think they've got the flexibility to go both routes whatever really suits them.
From our perspective, it doesn't really change anything in terms of the transaction I think from memory.
You also look at the way that Shandong structured the acquisition of Cardinal I think they did something very similar by bringing in this sort of financing partners. So that's the sort of 30, well trodden path for Chinese listed companies.
Yeah.
Okay. Thanks for that Graham My apologies no questions for me this time around but thanks to everyone cheers.
Thanks, Greg.
Yeah.
Ladies and gentlemen, as a reminder, should you have a question. Please go ahead and press the star followed by the one.
Your next question does come from Daniel Mckenzie from Rasp or investments. Please go ahead.
Good day, Andrew and everyone.
Thank you.
Couple of questions. One I was going to ask first off on the no objection permit Andrew when would you expect that one.
That typically Dan comes right at the end of the process. So.
Once I would've thought most of the other conditions.
Fulfilled.
I guess, we get it's got to be conscious of when that actually foods calendar wise. So.
Late December early January it might be difficult to get hold of the right people. So we would expect that probably more to be towards the second week of January as we get to the <unk>.
And of the process and closing.
Okay. Thank you.
Andrew could you give us a bit of history.
Of your dealing with Shang Fung in this.
Have your acquisition and what is the.
I know, it's not for your decision or your call, but how is the transition just in terms of employees and management et cetera, and talked about between the two companies.
Yes.
<unk> said, we've been talking for probably about six months almost exactly I think since we first had an approach.
And over that time, obviously, you got to know each other.
It'll bit better.
Got to understand.
The capacity and capability chiffon.
<unk> had a team in country for quite some time.
I think everybody knows they were previously looking beyond and they kept the presence in Ghana.
The ground so they've developed some relationships in country as well, which I think is important.
Through that process.
Key for US was understanding capability to take the operation on.
Their views and level of interest in the <unk> plan and delivering the plan given we know that's important to all the stakeholders in country.
Our CSR.
The programs and the way that we go.
Engage and do business, there and I think they've been very impressed by what they see and keen to take those Hilton and then to transition which is really the phase were in now.
Ensuring that.
All employees be they in gone or the UK.
A fairly treated through that process.
And I think if I'm honest most of the impact obviously comes in London, given that they don't need a head office in London.
Gone are the message is very much they're keen to push the development of an investment in <unk> and they're going to need people to be able to do that so our real focus there on the team and on the skills in place.
They'll have people at site.
From end of this week, probably next week at some stage in order to then get that more day to day your familiarity and build those relationships as we go through the next two months.
We achieved as <unk>.
The handover as we can.
Okay.
People at site right through the closing.
Yes, yes.
Great great.
Great Andrew Thank you very much.
You will get through this.
Thank you.
Okay.
There are no further questions at this time you may please proceed.
Okay. Thank you very much if there is anything then you've got all of our contact details and be more than happy to follow up on any of those points and.
To see how things progress so.
At the time today and thank you very much again to everybody.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Yeah.
Okay.
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