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Monday, July 25, 2016 Derek Macpherson

Despite Planned Shutdown GSC On-Track to Meet Cost Guidance


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Golden Star Resources Ltd. (TSX:GSC, NYSE MKT:GSS) reported Q2 2016 financial results which reflected the planned 2.5-week shutdown. On previously reported production of 42,472 oz, Golden Star reported consolidated operating cash costs of US$959/oz for Q2 and US$826/oz for H1 2016. Despite higher costs, the rising gold price saw CFPS before changes in working capital increased 75% QoQ to US$0.07. In our view, the 33% higher costs QoQ is likely reflective of the planned shutdown and we would expect costs to improve in H2 2016, particularly since the higher grade ore from Wassa underground is expected to hit the mill in H2. Based on these results and the expected improvement, we believe that Golden Star remains on-track to achieve both production and cost guidance in 2016.


Q2 Financial results reflective of planned shutdown. In Q2, there was a planned 2.5 week shutdown at Wassa processing plant. This shutdown resulted in a QoQ increase in consolidated cash operating costs of 33% (Figure 1), driven by a QoQ cost increase of 38% at Wassa. Prestea cash costs were also 27% higher QoQ on modestly lower grades and a higher strip ratio. However, the rising gold price results in CFPS before changes in working capital increasing QoQ to US$0.07 (Figure 2).





Golden Star remains on-track for 2016 guidance. The combination of a strong Q1 and weaker Q2 appears to have Golden Star on-track to meet 2016 guidance. H1 production of 95,678 oz is 53% of the lower end of the guided range and H1 cash costs came in at US$826/oz, which is towards the lower end of the guided cost range of US$815-925/oz.Results to date suggest Golden Star is likely to achieve 2016 full-year production and cost guidance.

Continued execution key to maintaining the trend. Despite a 22.7% decrease today, as a result of an announced financing, Golden Star is up 334% YTD outperforming the GDXJ, which is up 128%. Golden Star trades at 1.37x NAV and 5.0x 2017E EBITDA versus peers at 1.65x and 5.1x, respectively. As Golden Star continues to execute on its plan to transition from a high-cost open pit producer to a lower grade underground producer we expect Golden Star to continue to outperform peers.

Company description: Golden Star Resources Ltd. (TSX:GSC, NYSE MKT:GSS) is a gold mining company operating in the prolific Ashanti Gold Belt in western Ghana. The Company has 100% interests in two producing mineral properties the Wassa and Prestea mines which both have existing open pit operations and are planned to be developed into low cost, high grade underground mines.

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