Macro Tsimmis

intelligently hedged investment

Golden Star Resources (GSS) update #7

Posted by intelledgement on Tue, 06 May 08

It’s a new year: 2008. And we owners of Golden Star Resources (GSS) have a new leader: Tom Mair got to drop the “interim” from his CEO/President title and got named to the board of directors a couple of months ago. Unfortunately, financial results from 1Q08 released today indicate that the same old sad twangy country song we’ve had sung to us for the last couple of years is still playing on radio WGSS: “Our Profits Got All Ate Up by the BIOX® Plant.”

First of all, production was down from last quarter. In and of itself, that is not bad, as 1Q production typically lags the preceding 4Q for a variety of reasons. But the decline this year was worse than usual: 35% (down from 88M ounces in 4Q07 to 57M  ounces this quarter). In 2007, the decline from 4Q06 to 1Q07 was 19%, which is normal. Why? Blame BIOX®: “While significant progress was made in the flotation circuit during the period and the regrind mill was put into service, several of the bio-oxidation tanks were non-operational during the first quarter due to replacement work on the respective agitator shafts and gear boxes. The reduced number of operational bio-oxidation tanks reduced concentrate retention time resulting in insufficient oxidation, which in turn caused low CIL (carbon in leach) recoveries,” according to the press release.

And still more depressing: production costs increased in 1Q08. They were already too high in 2007—$602/oz overall and $582 for 4Q07—but at least the seemed to be headed in the right direction…in 3Q07, the first full quarter of BIOX® plant operations, the production cost was $687/oz. And management had said production costs were expected to decrease and the kinks were worked out of the process. Well…not this quarter. It cost us $624 to produce each ounce of gold in 1Q08. Why? Blame BIOX: Bogoso/Prestea cash operating cost was $769/oz in 1Q08.  😦

Thank goodness for the weak dollar, which spurred the price of gold, most probably, higher than it otherwise would have been and enabled GSS to obtain $926/oz for those 57M ounces, up 42% from 1Q07. As a consequence, our overall 1Q08 losses were limited to $3.9MM, less than two cents/share. It coulda been worse.

There is a lot of static listening to this station. Every now and then, the BIOX ditty fades and we get a snatch of cheerful show music, or uplifting gospel, or even a soaring opera aria…as if promising better things to come…before being snapped back to our regular red ink program, already—and seemingly interminably—in progress. For example, it appears that additional discoveries at Bogoso (Chujah South) are extensive enough to likely result in additions to the company’s mineral reserves. A promising potential extension to Prestea is being tested. And the two new gold anomalies have been discovered alongside the Wassa-Benso haul road currently under construction in the Chichiwelli concession. Initial drilling has confirmed significant grades ranging from 100 part-per-billion to 1200 ppb gold; additional prospective drilling is scheduled for 2Q08 according to the press release.

So…while we are tired of the same old song here, for now, we will keep on hangin’ on, hoping these guys can yet make it happen.

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