TORONTO, July 25, 2016 /PRNewswire/ - Golden Star Resources Ltd. (NYSE MKT: GSS; TSX: GSC; GSE: GSR) ("Golden Star" or the "Company") reports its financial and operational results for the second quarter ended June 30, 2016.

Highlights:

• Gold production of 42,461 ounces during the second quarter of 2016, in line with expectations
• Consolidated cash operating costs¹ of $959 per ounce, in line with expectations, a decrease of 14% from the second quarter of 2015 ("Q2 2015")
  • $975 per ounce at Wassa Gold Mine ("Wassa"), an increase of 6% from Q2 2015
  • $943 per ounce at Prestea Gold Mine ("Prestea"), a decrease of 26% from Q2 2015
• All-in sustaining costs¹ ("AISC") of $1,185 per ounce, a decrease of 7% from Q2 2015
• Capital expenditures of $23.0 million during the quarter, an increase of 80% compared to Q2 2015, as the development of the Wassa Underground Gold Mine ("Wassa Underground") and the Prestea Underground Gold Mine ("Prestea Underground") continued apace
• Pre-commercial production commenced at Wassa Underground, subsequent to quarter-end
• Construction activities at Prestea Underground continue to advance, with first gold production on schedule for mid-2017
• At the half year, the Company remains on track to achieve its full-year production guidance, cash operating cost¹ and capital expenditure guidance
• Cash flow generated before changes in working capital¹ of $19.3 million or $0.07 per share in the quarter, a significant improvement over the $18.1 million cash used, or cash used of $0.03 per share, in Q2 2015
• Consolidated cash balance of $7.6 million, prior to the receipt of the $20 million scheduled advance payment on July 1, 2016 from RGLD Gold AG ("RGLD"), a subsidiary of Royal Gold, Inc., pursuant to the streaming agreement, as amended (the "Streaming Agreement") with RGLD

Sam Coetzer, President and Chief Executive Officer of Golden Star, commented:

"The second quarter of 2016 and the weeks that have followed have been an important time for Golden Star.  Our capital expenditures during the quarter were $23.0 million and this reflects the work at both underground developments, which continued to gather momentum.  As a result, in early July the first stope was blasted at Wassa Underground, which is a significant milestone in the Company's transformation into a high grade, low cost producer.  We remain on track to deliver commercial production at Prestea Underground in mid-2017 and to achieve our full year production, cash operating cost and capital expenditure guidance."

OPERATIONAL PERFORMANCE

The focus of the second quarter of 2016, from an operational perspective, was progressing Wassa Underground towards commencing pre-commercial production.  This was achieved 10 days after the quarter-end on July 10, 2016.  Construction work also continued at Prestea Underground, with commercial production remaining on target for mid-2017.

During the quarter, 42,461 ounces of gold were produced at consolidated cash operating costs of $959 per ounce, a decline of 14% from Q2 2015.  The AISC was $1,185 per ounce, a decline of 7% from Q2 2015.  Importantly, sustaining capital for the second quarter of 2016 was $3.2 million, which is 36% of the total sustaining capital budget of $9 million for the year.  One of the primary uses of sustaining capital during the quarter was to fund the upgrade work to the Wassa processing plant and the work was completed on time and on budget.  However the $3.2 million incurred represented a 60% increase compared to Q1 2016, when $2.0 million of sustaining capital was incurred, and as a result, the AISC for the second quarter is atypically inflated. 

Although costs for the second quarter of 2016 were higher than the Company's guidance range for the full year, during the first six months of the year the Company's cash operating costs of $826 per ounce are in line with its expectations.  The AISC for the first half of 2016 was $1,016 per ounce.  The Company remains on track to achieve its full year production guidance in terms of production, cash operating costs and capital expenditures.

Furthermore, costs are expected to decrease further as the Company continues its transition to non-refractory lower cost production and moves towards the commencement of commercial production at both high grade underground projects. 

Wassa Operational Overview

Gold production from the Wassa Main Pit was 21,543 ounces for the second quarter of 2016.  Golden Star expected there to be a decline in second quarter 2016 production compared to the first quarter due to a scheduled maintenance shutdown at the Wassa processing plant, in addition to the seasonality traditionally impacting the second and third quarters of the year.  The planned shutdown lasted for 2.5 weeks and during this time Golden Star's operational team rebuilt the ball mill foundation, replaced critical components of the primary crusher and upgraded the electrical system in the carbon-in-leach plant.  This work was completed successfully and the operational team has reported an increase in throughput as a result.

Wassa reported a cash operating cost per ounce for the second quarter of 2016 of $975, an increase of 6% compared to Q2 2015.  Primarily this slight increase is a reflection of 15% decrease in gold sold as a result of the scheduled plant shutdown.

Capital expenditures at Wassa for the quarter were $13.4 million, a greater than 90% increase compared to Q2 2015.  The majority of this amount was development capital, with $8.4 million relating to Wassa Underground and $2.9 million for the improvement of the tailings storage facility.  The remaining $2.0 million was sustaining capital.

Wassa Underground Development

Wassa Underground commenced pre-commercial production post-period end. The successful blasting of the first stope in the F Shoot delivered the first ore from the new underground mine to the Wassa processing plant.  This first stope was mined using longitudinal longhole open stoping, utilizing remote control scoops for ore loading and then hauled to surface via 50 tonne trucks. 

The first stope is in the upper part of the F Shoot, which is one of the more moderate grade areas of the deposit.  The higher grade areas within the B Shoot are scheduled to be accessed in early 2017.

Wassa Underground is expected to achieve commercial production in early 2017 and the full production rate is expected to be achieved in 2018.

The development rate at Wassa Underground during the second quarter of 2016 was 9.2 metres per day, which compares to an average of 8.6 metres per day during the first quarter of 2016. The development rate is currently 10-12 metres per day and it is expected to continue to increase throughout the second half of 2016 as efficiencies improve and more development faces become available.

Wassa Underground is forecast to produce 20,000-25,000 ounces of pre-commercial gold production in 2016 and it remains on track to achieve this guidance.  Production from the combined Wassa Main Pit and Wassa Underground operations is expected to be 120,000-135,000 ounces of gold in 2016 and average life of mine combined production is anticipated to be 163,000 ounces of gold per annum. 

Prestea Operational Overview

Non-refractory gold production from the Prestea Open Pits was 20,918 ounces for Q2 2016, compared to 4,601 ounces for the same period in 2015 due to the fact that the mining and processing of the Prestea oxide ore did not commence until Q3 2015. Non-refractory production in Q2 2015 was processed from low grade tailings. Refractory gold production, which was suspended at the end of the third quarter of 2015, was 25,702 ounces of gold during Q2 2015.

Prestea reported a cash operating cost per ounce of $943 for the second quarter of 2016, compared to $1,273 for the same period in 2015. This 26% decrease in cash operating costs per ounce is due to the change in cost profile at Prestea. Mining and processing costs in the second quarter of 2016 were attributable to the lower cost non-refractory operation whereas 85% of gold sold in the same period in 2015 was attributable to the higher cost, higher power consuming refractory operation.

Total capital expenditures for the quarter were $9.6 million, a 66% increase compared to the same period in 2015.  This is as a result of an increase in development capital expenditures, which totaled $7.7 million and were used to continue to advance Prestea Underground towards production.

Prestea Underground Development

The Feasibility Study results for Prestea Underground were reported in December 2015 and indicated a post-tax internal rate of return ("IRR") of 42% and net present value ("NPV") of $124 million based on a discount rate of 5% and gold price assumption of $1,150 per ounce. Cash operating costs of $462 per ounce and AISC of $603 per ounce were estimated over the mine life of 5.5 years at an average annual production rate of 80,000 ounces.

In January 2016, an internal study was commenced to investigate changing the proposed Feasibility Study mining method from conventional shrinkage mining to mechanized shrinkage mining. The study was completed in March 2016 and indicated an increase in value with a post-tax IRR of 54% and NPV of $134 million based on a discount rate of 5% and gold price assumption of $1,150 per ounce. At a $1,300 per ounce gold price, which is more in line with today's spot price, the project delivers a post-tax IRR of 65% and NPV of $183 million.  Cash operating costs of $468 per ounce and AISC of $615 per ounce were estimated over the mine life of 4.5 years at an average annual production rate of 90,000 ounces.

Based on these improved economic parameters and on expectations for improved safety and efficiency using mechanized shrinkage mining, this method will be used for the extraction of the Prestea West Reef orebody. The change in mining method does not constitute a material change in the economics or capital presented in the Feasibility Study and the change in mining method has not resulted in any change to the Mineral Reserves or Mineral Resources.

During the quarter, engineering, procurement, rehabilitation, and construction activities all progressed.  Rehabilitation works on 24 level to improve the track for high-speed haulage and to install new electrical and water supply services are nearing completion.  The winder upgrade is progressing with manufacturing of key electrical and mechanical items which, combined with the shaft rehabilitation, will enable an increase in hoisting capacity to satisfy the production profile in 2017.  Significant quantities of electrical equipment for the electrical upgrade have arrived on site and construction has commenced. Other equipment and material procurement for the project is ongoing and in various phases of manufacturing and delivery to site.

Construction activities continue to advance according to schedule and pre-development of the resource is expected to commence as planned from the fourth quarter of 2016.  Stoping is expected to start in the second quarter of 2017 and commercial production is anticipated to be declared in mid-2017.

FINANCIAL PERFORMANCE

Capital Expenditures

An important point to note in terms of the Company's financial performance during the quarter is the capital expenditures of $23.0 million.  This represents an increase of 80% compared to Q2 2015 and an increase of 45% compared to Q1 2016.  It reflects the acceleration of development work at both underground projects.

Second Quarter 2016 Capital Expenditures Breakdown

During the first half of 2016, $38.9 million of the total $90 million capital expenditures budget for the year was incurred, with the remaining $51.1 million expected to be incurred in the second half of 2016 as development work continues apace at both Wassa Underground and Prestea Underground.

Other Financial Highlights

Other highlights of the quarter included revenue of $51.5 million from gold sales of 42,004 ounces at an average realized gold price of $1,225 per ounce.  This represents a decrease in revenue of 22% from Q2 2015, which is primarily attributed to lower production as a result of the suspension of the Bogoso refractory operation in late 2015 and reduced production from Wassa as a result of the scheduled plant shutdown.  However the decline in gold sales was partially offset by the higher realized gold price.

Cost of sales excluding depreciation and amortization was $43.0 million in the quarter, which is a significant decline from the $78.7 million cost of sales in Q2 2015.  This is as a result of fewer ounces sold compared to Q2 2015, lower mine operating expenses following the closure of the high cost Bogoso refractory operation and the $13.0 million of severance payments at Bogoso incurred in Q2 2015.

Depreciation and amortization declined by 69% from Q2 2015 to $4.1 million, as a result of fewer ounces produced.  As a result of lower cost of sales and depreciation and amortization, mine operating margin increased significantly to $4.4 million from the $26.1 million mine operating loss in Q2 2015.

General and administrative ("G&A") expenses were $8.6 million for the quarter, which includes $5.4 million of non-cash share-based compensation expense reflecting the substantial improvement in the Company's share price in the quarter.  G&A expenses excluding non-cash share-based compensation costs totaled $3.2 million for the quarter, which represents a decrease of $0.1 million compared to Q2 2015.

The Company also recorded $18.1 million of fair value losses on financial instruments comprised of a $15.2 million non-cash revaluation loss on its 5% convertible senior unsecured debentures due June 1, 2017 (the "5% Convertible Debentures"), $0.9 million non-cash revaluation loss on warrants, $1.5 million non-cash revaluation loss on forward and collar contracts and $0.5 million realized loss on settled forward and collar contracts.  The $1.3 million fair value loss recognized in the second quarter of 2015 was a non-cash revaluation loss on the 5% Convertible Debentures. 

The net loss attributable to Golden Star shareholders in the quarter was $22.0 million and after certain adjustments, the adjusted net earnings attributable to Golden Star shareholders was $1.4 million, a significant improvement from the adjusted net loss attributable to Golden Star shareholders reported in Q2 2015 of $15.7 million.

Cash flow provided by operations before changes in working capital for the quarter was $19.3 million or $0.07 per share, a significant improvement on Q2 2015 when $18.1 million was used by the operations or $0.03 per share.  This increase is attributable to the higher operating margins at both operations and the advance payment received from RGLD on April 1, 2016, pursuant to the Streaming Agreement.  Cash flow provided by operations for the quarter was $6.1 million or $0.02 per share, which also represents an improvement on Q2 2015 when $2.7 million or $0.01 per share was used in operations. 

The consolidated cash balance was $7.6 million at the end of the second quarter 2016. This does not reflect the $20 million received on July 1, 2016 from RGLD.

Other Corporate Developments

Settlement of Convertible Debentures

During the second quarter the Company repurchased $3.6 million principal amount of its 5% Convertible Debentures for $1.8 million that included an interest payment of $0.1 million. Following this event, $73.9 million principal amount of the 5% Convertible Debentures remains outstanding and is due to mature on June 1, 2017.

$15 Million Bought Deal Financing

On May 9, 2016, the Company completed a bought deal public offering of 22,750,000 common shares at a price of $0.66 per share for aggregate gross proceeds of $15 million (the "Offering").   

The net proceeds of the Offering were used for debt reduction as well as for working capital and general corporate purposes.

Settlement of $36.5 Million of Current Account Payable

During the second quarter of 2016, the Company entered into an agreement with a significant vendor to settle $36.5 million of current liabilities.  Under this agreement, the Company has paid the vendor $12 million and deferred the remaining $24.5 million until January 2018 after which, the outstanding balance will be repaid in equal installments over 24 months with interest of 7.5% that will accrue and be payable beginning in January 2017.

$20 Million Received from Streaming Agreement with Royal Gold

Golden Star received two scheduled advance payments from RGLD of $20.0 million on April 1, 2016 and July 1, 2016, pursuant to the Streaming Agreement.  This second payment brings the payments made to date to $115 million of the total $145 million expected before the end of January 2017.  Payments under the Streaming Agreement are being used to enable Golden Star to continue its transformation to becoming a low cost, non-refractory gold producer.

Forward and Collar Contracts

During the first quarter of 2016, Golden Star initiated a gold hedging program to limit its exposure to the fluctuations in the gold price during the development phase of the Wassa Underground and Prestea Underground projects.

On July 25, 2016, the Company has the following outstanding contracts: (i) forward sales contracts for 6,000 ounces (or 1,000 ounces per month from July to December 2016) at a gold price of $1,188 per ounce, and (ii) costless collars on 24,000 ounces with a floor price of $1,125 per ounce and a ceiling ranging between $1,245 per ounce and $1,325 per ounce for period from July to December 2016. During the second quarter of 2016, the Company realized a loss of $0.5 million on settled contracts.

Outlook

Golden Star remains on track to achieve full year production of 180,000-205,000 ounces of gold in 2016, including 20,000–25,000 ounces of pre-commercial production from Wassa Underground.  As part of this guidance, the Company is expecting production in the third quarter of 2016 to be approximately in line with production in the second quarter due to the seasonality that traditionally impacts Q2 and Q3.  Gold production is expected to strengthen again by the fourth quarter.

The Company also maintains its cash operating cost guidance of between $815 and $925 per ounce and its capital expenditure guidance of $90 million, which includes $81 million of development capital and $9 million of sustaining capital.  Golden Star expects its cash operating costs to decrease further as both underground development projects commence commercial production and the Company completes its transformation into a high grade, low cost gold producer.

Second Quarter 2016 Conference Call Cancelled

Golden Star will no longer be hosting a conference call for the second quarter 2016 results. 

All monetary amounts refer to United States dollars unless otherwise indicated.

Company Profile

Golden Star is an established gold mining company that owns and operates the Wassa and Prestea mines situated on the prolific Ashanti Gold Belt in western Ghana, Africa. Listed on the NYSE MKT, the TSX, and the GSE, Golden Star is strategically focused on increasing operating margins and cash flow through the development of two high grade, low cost underground mines both in conjunction with existing open pit operations. The Wassa Underground commenced pre-commercial production in mid-2016 and the Prestea Underground is expected to commence production in mid-2017. Both projects are fully funded and on track to begin production as expected. Production in 2016 is expected to be between 180,000–205,000 ounces of gold with costs of US$815-US$925 per ounce.