STOCK RATING: Sector Perform
RISK RATING: Above Average
Q3/13 Production Results Mildly Ahead of Expectations; May Lead to
National Bank's Paolo Lostritto seems to be the one analyst that really gets GSS. Highlights from today's NB release:
Increased Production Guidance
2014 CFPS Set To Be In Excess of US$0.40; Market Remains Focused on
Reserve Update in the New Year
*Impact: Mildly Positive
* Golden Star released preliminary Q3/13 production data, which was mildly ahead of expectations. Initial
data totaled Q3/13 sales of 88.9k oz versus our expectation for 80.1k oz. The Bogoso/Prestea sold 44.1k oz and Wassa/HBB sold 44.8k oz for the quarter vs. our expectation of 34.4k oz and 45.6k oz, respectively. While the Bogosa production was driven by increased throughput during the quarter, the Wassa operations reflected the impact of investments on development drilling and plant upgrades during the first half of the year.
*Balance sheet improves quarter-over-quarter; reflects production growth along with lower cost focus.
GSC’s Q3/13 ending cash balance is US$67.0 mln compared to US$52.7 mln at the end of Q2/13 and our US$63 mln estimate. The company also has additional undrawn credit facility of US$40 mln. Although the company has not provided the cash costs for the quarter, it has indicated that part of the production at Bogosa was from the low cost tailing reclaim facility. The company also expects the stripping ratio at Chujah and Bogosa North pit of the Bogosa Project should result in lower costs from Q4/13 onwards. (con't)
*Annual production expected to be in the higher end of guidance and could result in a guidance increase.
GSC has stated that with the strong production in Q3/13, the company now expects 2013 annual production to be on the higher end of the previous guidance of 290-310k oz. We believe Q3/13 strong production results paves the way for an increase in production guidance. Recall that GSC recently lowered 2013 guidance to 290-310k oz at cash cost of US$1,050-1,150/oz (was 320-350k oz Au at cash operating costs of US$1,050-1,150/oz).
*The market is applying a heavy discount to account for the potential of a reserve write-down in the new
year. GSC's reserves are calculated at US$1,450/oz and may lead to a reserve write-down at year-end 2013 if
the current gold price weakness persists. GSC’s cash flow profile remains very sensitive to the gold price. We
estimate that a 10% delta in the gold price translates to a 110% change in our calculated NAVPS.
*We expect to publish updated estimates with our quarterly preview shortly. The financial results are expected on November 4, 2013 before market open. The conference call will be at 10:00 AM EST.