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Edited Transcript of GSC.TO earnings conference call or presentation 2-May-19 2:00pm GMT

Q1 2019 Golden Star Resources Ltd Earnings Call

Toronto May 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Golden Star Resources Ltd earnings conference call or presentation Thursday, May 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Wray

Golden Star Resources Ltd. - President, CEO & Director

* Daniel Monney Akwafo Owiredu

Golden Star Resources Ltd. - Executive VP & COO

* Martin Raffield

Golden Star Resources Ltd. - Executive VP & Chief Technical Officer

* Pieter André van Niekerk

Golden Star Resources Ltd. - Executive VP & CFO

* Steven Mitchel Wasel

Golden Star Resources Ltd. - VP of Exploration

* Tania Shaw

Golden Star Resources Ltd. - VP of IR & Corporate Affairs

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Conference Call Participants

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* Bryce Adams

CIBC Capital Markets, Research Division - Analyst

* Heiko Felix Ihle

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Raj Udayan Ray

Desjardins Securities Inc., Research Division - Analyst

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Presentation

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [1]

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Good morning. And thank you for joining us today to discuss Golden Star Q1 2019 financial and operating results. I'm Tania Shaw, VP of IR, and I'd like to introduce Andrew Wray, who's been appointed President and CEO as of -- of Golden Star as of yesterday, May 1.

Andrew joins us from La Mancha, where he was previously President and CEO, brings with him a strong background in finance and corporate development and extensive experience in the mining sector. On behalf of the entire team of Golden Star, we'd like to extend a very warm welcome.

I'll now turn the call over. Andrew?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [2]

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Many thanks, Tania, and good morning, everybody. It's a pleasure to be taking on this role and pleasure to be talking to everybody on the call today. As you may know, this is Day 2 in the new job for me. So nothing like hitting the ground running and straight into the first quarter results. Fortunately, in that, I've got a strong team around me at the table today. So in addition to Tania, we've got Martin, who's our CTO; Mitch, VP of Exploration; Daniel, COO; and Andre, CFO. And you'll hear from several of those during the call, and I think between us, we'll be happy to take all questions once we are through the presentation materials.

Just turning on to Golden Star and a short snapshot of Golden Star. As you know, we've got 2 operating mines currently in Ghana, a pretty extensive landholding along that belt. In terms of 2019, our production guidance of 220,000 ounces to 240,000 ounces, broadly in line with 2018. An AISC of $875 to $955 an ounce. And we've got a strong balance sheet with just under $82 million of cash at the end of the first quarter.

Turning on to Slide 5 and the Q1 results. I think before going into any of the numbers themselves, the first bullet point worth bearing in mind and for me taking on the role, from my perspective and also part of the ethos of the company is safety, and it gives me great pleasure to see that focus throughout the operation. And that's reflected in the numbers that we're presenting in terms of safety statistics and that will not change. So that focus remains, and we must ensure that, that's everyday top priority for us.

Turning to the numbers themselves. I think they really illustrate pretty well where this business is out at the moment. As you've seen, at a consolidated level, we're tracking fully in line with where we expected to be, where we set guidance to be, but that's made up of 2 quite different levels of performance of the 2 assets.

Clearly, Wassa continuing to perform strongly and ahead of forecast and expectations and a disappointing quarter from Prestea. And we'll say a little bit more during the presentation about what our plans for Prestea are, and how we're going to address those issues there. So as I said at Wassa, the mining rates have continued to ramp up, and it's very encouraging to see. And that's driven the production of just around 43,000 ounces, 43,000 low-cost ounces. I think that's encouraging for an asset that is ramping up, but still able to deliver strong cash flow, first quartile costs and exciting growth. So Wassa will continue to drive the business.

At Prestea, tonnes were somewhat below where we wanted them to be. Grade was below where we wanted it to be. And that fed through to that 10,000 ounce production for the quarter, and that's not a sustainable situation. That's not a sustainable number. We will address that.

What I would draw your attention to on the overview slide is the exploration results that this business has had. And I think as everyone would agree that drives long-term value in any mining company. And the way that the Wassa deposit has been delineated and continues to grow is a testament to the team's expertise there. We've got some exciting potential that we're working through at Father Brown. And at Prestea, there's still further optionality there, and that success through the drill bit is something we're, I think, rightly proud of.

During the presentation, Mitch will say a little bit more about that. Daniel will talk more about the operations. But first, I'll hand over to Andre to give a bit more detail on the financials. Andre?

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Pieter André van Niekerk, Golden Star Resources Ltd. - Executive VP & CFO [3]

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Thank you, Andrew, and welcome on board. Gold revenues for the first quarter of 2019 totaled just over $67 million from gold sales of approximately 53,500 ounces, at an average realized gold price of $1,257 per ounce.

This represents a 5% decrease in revenues compared to the first quarter of 2018, largely as a result of a decrease in gold revenue generated from Prestea, which was partially offset by an increase in gold revenues from Wassa. Compared with the same period in 2018, gold revenues from Prestea decreased by 48%, resulting from the planned decrease in the production from the Prestea open pits and the slower-than-expected ramp-up at Prestea Underground.

At Wassa, gold revenue increased by 19% as a result of the increased mining rates at Wassa Underground. Cost of sales excluding depreciation for the quarter decreased 26% to approximately $44 million, mainly due to the reduction in mine operating costs, a reduction in severance charges and a reduction through the drawdown of metals inventory. The consolidated mine operating margin increased to $16.6 million for the first quarter of 2019.

Wassa's mine operating margin was approximately $23 million for the quarter. This is 140% higher than Q1 of 2018, offset by a $6.3 million mine operating loss incurred at Prestea in the quarter. Income tax -- income before tax was $4.5 million for the first quarter of 2019 compared to $2.5 million in 2018.

At Wassa, income before tax was $21 million, resulting in income tax expense of $7.2 million for the quarter, compared to income before tax of $8 million and income tax expense of $2.9 million in Q1 of 2018.

At Prestea, the net loss before tax was $6.7 million and was similar to that of 2018. The loss before tax for corporate and other was approximately $11 million for the quarter, mainly due to a $9 million in noncash loss on the fair value of financial instruments and higher G&A expense due to higher noncash share-based compensation recorded for the quarter.

This did result in net loss attributable to Golden Star shareholders of $1.9 million compared to net income of $1 million in Q1 of 2018 and an adjusted net income attributable to Golden Star shareholders of $9.4 million compared to adjusted net loss of $2.1 million in the same period last year.

Now let me briefly walk you through the cash flow for the quarter. The opening balance for the quarter was $96.5 million. Now starting with cash flow from operations, Wassa's operating margin contributed an additional $27 million of cash this quarter, while Prestea incurred a mine operating loss of approximately $4 million.

Exploration and reclamation expense were $1.5 million. G&A excluding noncash share based compensation was $3.2 million and interest expense was $2.8 million. The decrease in accounts payable used $10 million of cash, $6.3 million of which is attributable to Prestea, who paid $5.3 million in severance accrued in December last year.

The other large payment was $1.8 million for the semi-annual interest payment on the convertible debenture, the remainder being normal course payments for year-end accruals. The buildup of inventory and an increase in receivables used a further $5.5 million, which together with a decrease in accounts payable totals the change in working capital of $15.5 million. The net cash used in operating activities then totaled to $600,000 you see on our cash flow statements.

Investment activities -- investing activities used $11.5 million on capital expenditures during the quarter, of which the majority was spent at Wassa. $5.4 million on exploration drilling, $2.1 million on capitalized underground development cost, $1.3 million on mobile equipment and $1.1 million on a vent raise being some of the larger items. Then finally, financing activities used $2.8 million in the quarter on principal payments of the Ecobank loan, resulting in a cash balance at the end of the quarter of $82 million.

I will now turn it over to Daniel to talk more about operations.

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [4]

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Thank you, Andre. I'll begin by talking about Wassa. We now consider this our flagship asset, and it continues to exceed our expectation.

Production at Wassa was 42,110 ounces for the first quarter, which -- this represented a 21% increase over the same period last year. We saw a 43% increase in production from Wassa Underground, resulting from an increase in mining rates as total tonnes mined and prices increased compared to the same period in 2018.

Mining rates at Wassa Underground continues to exceed our forecast. Approximately, for this first quarter, it was -- produced 3,600 tonnes per day on average, representing a 52% increase compared to the same time last year. And this surpasses the 2019 target average mining rate of 3,500 tonnes per day.

We are pleased to report that cash operating cost has gone down at Wassa by 19% compared to the same time last year. And we've seen a 20% increase in gold sold. Grade of the underground ore in the first quarter of 2019 decreased by 5% to 4.3 grams per tonne compared to the first quarter of 2018; however, this was anticipated. Approximately 98% of Wassa's production was attributable to Wassa Underground. Consequently the Wassa complex delivered its lowest cash operating cost per ounce of $552 per ounce.

This was primarily a result of increase in gold sold and decrease in operating cost for metals inventory, offset partially by an increase in mine operating expenses. Underground ore processed increased 53% to -- over 326,000 in the first quarter of 2019 compared to 213,000 tonnes in the same period of 2018.

Now turning over to Prestea. Gold production from the Prestea complex was 10,374 ounces in the first quarter of 2019, which represents a 53% decrease compared to the same period in 2018. While mining rate increased by 19%, we're still not at our targeted rate of 650 tonnes per day.

Prestea reported a cash operating cost per ounce of $1,463 per ounce. The increase from the same time last year was primarily due to the lower gold sales in the period, offset partially by lower mine operating expenses and operating cost from metals inventory.

Several factors that affected performance during the quarter include lower-than-planned ore tonnes, unplanned waste zones within the stopes, increased dilution and longhole drilling efficiency issues.

A broad review of operations is underway. A number of initiatives have been put in place to -- in the short-term to stem the losses we're making there and we've already seen improvement in the metrics coming up in the month of May that started towards the end of April. Prestea underground produced 7,344 in the first quarter of 2019 compared to 7,400 in the same period in 2018. The Prestea open pits produced 3,000 ounces in the first quarter of 2019. This decrease was planned as the Prestea open pits were expected to complete gold production in 2018.

Mining has continued into the first quarter of 2019 with additional ore being sourced from the pits close to Prestea. In order to help mitigate a lower production from Prestea Underground. I should add that we're already under -- we're already making arrangements to bring in independent consultant to review -- have a broad review of our Prestea operations including technical and operations. And we will -- next quarter, I'll inform you of our results.

I will now turn over to Mitch who'll talk about exploration.

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [5]

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Thanks, Dan. Good morning, everybody. I'm going to open up just with a brief overview of what we've been doing. It's been a busy quarter for us.

We've been actively drilling at Wassa, Father Brown and Prestea Underground. Wassa on surface, we currently have 7 drill rigs there, we've completed over 20,000 meters in the quarter for 25 drill holes. Father Brown has been active with 2 rigs that we've had busy there since 2018. And I'll talk a little bit about that later and the results that we're getting there. And Prestea Underground where we actively have 2 drill rigs working there, one on exploration and one on stope definition.

This is not to mention the drill rigs we have turning in Wassa underground where we have an additional 5 drill rigs that are stepping out and adding confidence to our indicated resources to bring them into a measured category by the end of the year. So we're working quite diligently with a lot of drill rigs turning right now.

Just to zip into the Wassa, talk about what our drilling program is there. You will see a slide there's a long section with an updated wire-frame that we've got showing there the deeps as well as the continuation of the B Shoot down towards the South. As mentioned, there we've got roughly 20,000 meters drilled with 7 rigs the first quarter. And the remaining drilling that we've got there will focus on both indicated to -- or inferred to indicated, conversion drilling as well as some definition drilling in the deeper material, which is inferred.

Breakdown is roughly around 22,000 meters for the inferred to indicated category, conversion drilling there, in which we've been quite successful in adding additional ounces as well as conversions from inferred to indicated.

And we have a remaining of about 6,500 meters that we'll continue to step out, testing the deeper zone towards the South as well as infill towards the North, and testing between some of the zones to demonstrate continuity.

Moving on to Father Brown. Father Brown, as mentioned, we've drilled -- started the programs there in 2018 and roughly completed 17,000 meters of drilling there. Just to revamp from where Father Brown is, it's roughly 85 kilometers to the south of the Wassa plant.

We historically have mined open pits there and do have infrastructure down there as well as a haul road that goes from the Wassa plant to the Father Brown and Adoikrom deposits that we're looking at down there. We're trying -- what we're trying to do there is we've been actively drilling, I can say, for 2 years. We've probably got a limited program that will be completed in Q2.

We will then pause to remodel, take a look at the resources that we have at Father Brown and Adoikrom, try to determine the controls on the high-grade mineralization, so either lithological or structural controls on that.

And we will look at that closely, and then report on that sometime in the second half of the year. So drilling is going well down there, and we will -- we'll be looking at that a little bit closer.

Now to jump over to Prestea. And I -- we know what's -- we've been looking at the Prestea area for some time now. What we've been trying to do is get some infrastructure in for drilling. And we were successful in doing that in January this year, where we started drilling testing the extension of the mineralization towards the north, which is closer towards the central shaft from the 262 drill cut, and then have had some successful drill holes out in that area, and then you'll notice on the slide that we have there that would be the area off by the North arrow there towards the left-hand side of the areas that we're currently stoping under where you see the S1 through S6 stopes that have been currently mined.

All of the drilling results that we do have here for Wassa, Father Brown and for Prestea will be released this quarter. So we will be putting some releases out to the market this quarter on drilling results and explaining that going forward.

In light of that, I'd like to hand it back to Andrew, who's going to wrap up with conclusions for us here. So over to you, Andrew.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [6]

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Excellent, and thanks, Mitch. So in summary for the first quarter, it's a solid start to the year for Golden Star. And as a result of that, we're maintaining our full year guidance. But I think it's fair to say there is certainly more to come from the assets. Wassa, as you've seen, continues to move ahead of forecast and ahead of expectations, and we will continue to push there, both in terms of our understanding of the orebody but also in terms of mining it out, pushing development, enabling underground access to better understand how we can increase the rate of extraction, and ultimately utilize the processing capacity that we have there.

At Prestea, as Daniel mentioned, there's several short-term measures that we're taking to look to improve the performance there, to improve some of the mining efficiencies, which will hopefully address the grade issue, to continue to step up the tonnage extraction and to help stem the capital outflow that we've seen at that asset which, as I've said, is not sustainable.

But beyond that, we're going to undertake a broader operational review. And I asked Martin and Daniel yesterday to scope that and move ahead. And as Daniel said, we'd hope then at the next quarter to have more information and give you a better steer as to what that implies for the asset.

In terms of exploration, as Mitch has just set out, continuing to see success there throughout the portfolio, and we'll be releasing further results in the second quarter.

And then looking forward, we're clearly driving the 2 existing operations to ensure that we deliver the value from then. And then we'll assess additional potential within the portfolio, be that Father Brown, be it elsewhere. And then what else we could do in terms of potential value-enhancing external opportunities, given the platform that we've got within the existing business.

So I think at that point, we'll stop. And over to you, Tania.

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Questions and Answers

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [1]

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Okay. So our first question comes from Heiko.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [2]

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So conceptually, you have 1 really good asset and 1 much more mediocre asset.

So I just went through your MD&A and the liquidity outlook this morning, and you're currently at $82 million of cash, but you also have $40 million? Can you guys hear me?

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [3]

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Yes, we can hear you.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [4]

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We heard you to the point of $82 million of cash and also...

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [5]

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Okay. Perfect, perfect. So I went through your MD&A and the liquidity outlook this morning. You are currently at $82 million of cash and you're at $49 million of CapEx plans. Then there is the $32 million of debt and $6.4 million for the settlement of the asset performance share units.

And yet -- and there is also a normal course issue a bit, but my gut feeling is that there isn't too many purchase under this right now.

I mean -- so looking at your cash costs, your all-in sustaining cost, there is a good margin. But I mean there is quite a bunch of transitions going on with the company, some of which were actually touched on earlier in this call. And then we got the thing that in mining, things tend to go wrong rather than right, and take longer than we want things to take and then gold at 1,267 today.

So then summing all this up, I started wondering, at what gold price would you guys look into potentially raising some more funds this year?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [6]

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Heiko, I'll start on that, and then probably hand over to Andre. I guess the thing I would say is -- I'd say conceptually we've got 2 very good assets. In reality, we've got 1 that's performing very well, and one that's not performing very well.

But that's what we're addressing. You're right in terms of current cash balances. We've got $82 million of cash. We've got some debt repayments coming out this year, and we're looking at whether it makes sense to look at consolidating some of those facilities, and Andre can say a little bit more about that.

But I think given where the assets are, we're not looking at this point in time at any requirement, even on lower sensitized gold prices, to raise any more capital.

I think for everyone in the industry there'll be a point at which everyone would need some more capital, but in terms of any realistic, sensitized assumptions, that's not something that we see as necessary at this point. But maybe I'll pass to Andre to add a little bit more about what we're doing with the balance sheet.

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Pieter André van Niekerk, Golden Star Resources Ltd. - Executive VP & CFO [7]

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Heiko. Yes, no, Andrew is right. But we are looking at some opportunities now that we -- the balance sheet has improved dramatically from where we were last year, and there's been quite a number of interests in us refinancing the current debt that we have, and we have progressed quite a ways on that, and we've seen some very competitive term sheets and look forward to doing something that would not only reduce the cost of capital but potentially defer some of that principal repayments that we're looking at in 2019.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [8]

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Okay. Now again conceptually, and I know we have someone on this call who knows La Mancha quite well. Do you guys think La Mancha would be willing to invest in the firm some more or are they tapped out or maxed out on their investment?

I mean, I can't believe I even brought this question up to someone with $80 million in the bank. It just -- again, like going through liquidity analysis and all the transitions at the company, I thought it would be pertinent.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [9]

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Maybe, I think you're referring to me possibly there, Heiko, I'd guess.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [10]

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Possibly.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [11]

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Yes, possibly. And my former and I highlight former employer.

Listen, La Mancha made a significant investment 6 months ago in the business, which, as you say, is reflected on the balance sheet. And they sit currently at 30%. I don't think there's any desire to move from that percentage, certainly not to move up at this point in time. And the view with sizing that then was that, that would be sufficient capital to carry out what needs to be done in the business. And in the analysis at the time, looked at various different scenarios over the coming year, was fully aware of the tenor of the debt, the repayments necessary on that debt as well as plans to look at consolidating and terming some of that out.

So there was a fair bit of work done on that. And that didn't necessitate any more capital from La Mancha. And it didn't necessitate any more capital, as far as I can see, from any shareholder.

So my sense is, they remain a supportive shareholder. They can see the potential in this business. They know that there's some work to be done and are supportive at doing that.

But hopefully, you can see, we're getting on with that. And that will entail some potentially tough decisions, but they will be made.

We believe the balance sheet and the support of potential financing partners is there to see us through that period.

So I think we're in a position where we know what needs to be done. We know what capital that will require, we know the gold price can be a little bit volatile, but we believe that we're in a position to deal with all of those.

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [12]

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Our next question comes from Raj Ray of Desjardins.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [13]

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Andrew, congrats on your appointment. Just a few questions from me. First up on Wassa Underground. So the 3,600 tonnes per day that you averaged in Q1, do you think it's sustainable for the remainder of the year? And do you see potential to increase that towards the 4,000 tonnes per day target for next year when the paste backfill plan to -- or the paste backfill will be implemented?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [14]

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The simple answer to that is yes. We see the potential to maintain it at the 3,600 and above or down to 4,000 sustainably through the current year.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [15]

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Okay. So even before the paste backfill is there, right?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [16]

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Yes.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [17]

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Okay. And what's the timing for the paste backfill to be complete?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [18]

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Maybe Q3 2020.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [19]

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And then, Martin, if -- we got Martin on the call, we discussed this at the board yesterday. If you want to say a little bit more, Martin, sort of where we are in that process currently?

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [20]

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In the paste plant process.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [21]

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Yes.

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [22]

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Yes, so we finished the feasibility for the paste fill plant, Raj.

We are in the process of tendering that now. We expect to be done with the tendering process within the next 3 weeks or so, and then get into the ordering of the major equipment and the construction over the next 3 months or so.

We expect to finish at some point in the second half of 2020. At the moment, we are looking probably mid-second half, so the end of Q3. And as Daniel says, there's potential for us to increase the tonnage above where we are now before the paste fill plant is completed as we get into panel 2 and as we open up new stoping areas.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [23]

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Okay. Thanks, Martin. And then at 3,600 tonnes per day, can you give some color on the unit cost on a per tonne basis, specifically mining processing and G&A for Wassa Underground?

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [24]

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Yes. On the mining side, we're sitting at about $37 a tonne at the moment. That's mine -- that's per tonne of ore mined. So that's all the cost per tonne of ore mined.

As we get into paste, we expect to add about $6 a tonne to that cost. So in the fourth quarter of 2020, that will go up by $6 a tonne.

But obviously with that $6 a tonne of cost, we get a huge benefit in terms of improving the efficiency of the underground operation, ventilation and haulage.

On the processing side, we're at around $10 a tonne, and on the G&A side at about $5.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [25]

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Okay. Thanks, Martin. And then quickly moving over to...

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [26]

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Oh, I'm sorry, I'm sorry I gave you the wrong number, it's $15 a tonne on the processing side. Apologies.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [27]

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Okay. Thanks. And then on Prestea, I know you did say that you're going through a review right now. Just to get a -- some visibility on the Alimak method and your understanding of the orebody over the last 2 years, like do you think it's the right method given the variability you're seeing in the ore body, and is that something that's up for consideration as well?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [28]

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Look, I think, Raj, I'll deal with that. Alimak was identified as the appropriate mining method. Clearly, the targets have not been hit in terms of mining rates for a number of reasons. That doesn't necessarily mean that it's because Alimak's the wrong method, but part of the point of taking a bit of a step back in reviewing every element, including mining method, is to answer just that question.

So if I can ask, if you don't mind, just to bear with us for a little bit whilst we do the work, and then we can come back and give you a considered answer to that.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [29]

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Okay. That's great. Thanks, Andrew. And on the open pits at Prestea, how much additional tonnes do you expect for this year? Because I assume that wasn't considered in the guidance? Or was it?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [30]

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So initially, that wasn't considered in the guidance, and we're fortunate in that we do have the ability to access fairly quick ore tonnes there that give us some margin and help us to offset the underdelivery we're seeing on the underground.

In terms of the tonnage, I don't know, Daniel, if anything you want to say about that?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [31]

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Yes. Well, for what we know now, we expect to be still going on until the end of the second quarter. But as we've done in the past, we've always had an expansion on that, and we might extend well beyond that.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [32]

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Okay, thanks, Daniel. And one last question, if I may. And it's for Andre.

Andre, at Wassa, what's the remaining tax losses you have? And do you expect to pay any cash taxes this year?

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Pieter André van Niekerk, Golden Star Resources Ltd. - Executive VP & CFO [33]

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I think at the beginning of the year, if I remember correctly, it was around -- I'll get back to you on that number, Raj. I don't want to give you the wrong number there. But to answer your question, we do expect to pay cash taxes in 2019. We are going to utilize all the unutilized losses at the beginning of the year. And then we will be totally reliant on the capital allowance that we get every year, which is 20% of the capital spend. So yes. And we will be in a taxable position.

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [34]

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Our next question comes from Justin Chan of Numis.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [35]

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My first question is on Prestea. And in terms of just scoping what we're looking for here for it to -- in your view and what you want to see to opt to continue with it. I mean, do you have a view in terms of all-in sustaining where you want them to get to and in the study what the long-term potential is? I guess, do you have all-in sustaining cutoff, or...

Just conceptually, what does that asset look like? And

(technical difficulty)

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [36]

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Justin, I think we -- it sounded like you were calling in from the Apollo lander there. We didn't pick up everything that you said. But if we heard correctly, I think the question was really relating to Prestea, and what we believe it could be capable of, what sort of AISC is acceptable.

We didn't hear the remainder of that. Look, I think we're not going to presuppose the outcome of the work because the point of the work is to answer that question.

Yes, as I said earlier in terms of the cost basis of this business. If you look at Wassa, that's a Tier 1 cost base and hopefully a Tier 1 producing asset in due course. But it's certainly low cost operation, and that is certainly a target to be maintained.

I would say we don't want to dilute that unnecessarily, which we're doing at the moment. Now is Prestea going to be at that cost base? Potentially not, but as close as we can get it would certainly be a target.

However, the answer to that really is in the study work we're doing. What we need Prestea to be is a cash generator for this business, not a cash consumer, and to be certain that, that's achievable on a sustainable basis. So that's where we need to get it to. The precise metrics, I think we'll work out in the coming weeks and months. I don't know if you are back, Justin, or not. Or if maybe you got cut off, but hopefully that answers the question.

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [37]

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Yes. Due to connectivity, Justin will reschedule another call with you later. Our next question comes from Bryce Adams at CIBC.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [38]

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So one observation is that the underground grades from Wassa were very strong in Q1. I was wondering how that reconciled to the [block mold]. I mean, are you expecting to be in higher grade lines in Q1? Or is there a positive reconciliation there?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [39]

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Daniel?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [40]

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Yes. The reference in there was compared to same period last year, but the grade we attained was close to what we expected it to be.

We expect to hit the valuable grades to date 2019.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [41]

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Sorry, can you say that last bit again?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [42]

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So we're on track in 2019 in terms of budget. There will be variability quarter-to-quarter, but the first quarter was probably in line with what we expected from the asset.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [43]

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So a good reconciliation. And then for the rest of the year, is there an outlook on grade then? Or is the model forecasting for the rest of the year?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [44]

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Daniel or Martin, I don't know if you've got the detail of that? I mean -- we can get those.

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [45]

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I haven't got it in front of me.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [46]

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But if you look at the forecast production, then you'll able to tell pretty well from that as the sort of tonnage rates were up, what that implies for grade. As you know, it's pretty variable quarter-to-quarter. But there won't be significant shifts in that.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [47]

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But Q1 was a good quarter in terms of grade.

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [48]

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Yes.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [49]

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Good to see throughput improving in the quarter as well, the 3,600 tonnes a day, are you able to provide the split between production and development? Ore tonnes?

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Martin Raffield, Golden Star Resources Ltd. - Executive VP & Chief Technical Officer [50]

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Probably about 90.

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [51]

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At least about 90% come from production.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [52]

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About 90%?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [53]

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What we're also seeing is some of the benefit -- we've seen more on the levels and of the development areas, which we thought them as waste, is coming into ore as well.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [54]

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Okay. Because it's my understanding that guidance is based on 3,500 tonnes a day, but that's only the production ore from stopes and excludes development ore. Is it still correct?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [55]

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No. Total.

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [56]

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Total.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [57]

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Guidance is based on 3,500 tonnes a day total?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [58]

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Yes.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [59]

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Okay. I think I might have had a different conversation previously. Good to know though. On Prestea, just on the long haul drilling efficiencies, I'm wondering if you could go into that in a little bit more detail. What was the issue there?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [60]

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The -- we're achieving a long haul drilling rate at the moment. What we're focusing on is the accuracy in terms of the angle, the azimuth and the depth, the QA/QC in getting that going. So to try and improve the quality of the ore when we had...

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [61]

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So the drilling rate is not an issue, but drilling accuracy?

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [62]

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The drilling rate is -- now that we've got them up skilled to get into the drilling rates, what we turning our attention on is the drilling accuracy.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [63]

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And so then drilling accuracy then led to the dilution issues?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [64]

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Yes.

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Daniel Monney Akwafo Owiredu, Golden Star Resources Ltd. - Executive VP & COO [65]

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Correct.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [66]

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Okay. I see the connection there. And then on the internal waste, is that something you've experienced previously? Or is this a new occurrence?

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [67]

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You are referring to internal waste within the stopes? This is Mitch speaking.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [68]

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Yes. I think. That's right, Mitch. So the grade dipped down to 6 grams -- 6.3 grams in ore for Underground.

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [69]

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Yes. It's more related to -- I think, like Dan mentioned, we have some dilution issues in there. We are seeing areas that are faulted out within the raises, but we're currently doing the stope definition drilling in order to predict where these are going to be. And we can mitigate that by stope design and Dan and the guys have actually been playing around with the actual -- the height of the raises and sublevels in order to minimize the dilution.

But what you are seeing is that where we do have these zones that were previously modeled as part of a contiguous body, but they did have no grade in them, so they had an overall effect of reducing the grade of the orebody as a whole.

We're looking at it now, we removed these from the actual -- as a separate domain, we do see the grades jumping up in the areas where that -- the reef has been duplicated up in those particular areas.

So we just have to work around the mining plan in order to limit the amount of the effect of these pinched out zones.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [70]

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So the impact wouldn't be significant enough to change the reserve statement ?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [71]

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No.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [72]

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But it creates a little bit of complexity in terms of when you draw the stope, you go from ore to waste and back to ore again?

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [73]

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Yes, generally speaking. In most cases we're seeing now, these zones are occurring at the top of the stope, so you're able to deal with it just by not raising as high up and then putting a sublevel in.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [74]

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Yes. And in terms of the operational review, I know you want to wait to discuss that in detail, but at a high level, is that an independent review or something you do in-house?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [75]

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Independent.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [76]

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Independent. And in terms of the worst scenario and the blue sky scenario, I assume that the downside scenario would be pulling the pin? And then maybe you can talk to the Blue Sky potential a little bit?

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Andrew Wray, Golden Star Resources Ltd. - President, CEO & Director [77]

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I think as you said at the start, Bryce, let's do the work. Let's figure out what that shows for the asset. At the same time, there are other initiatives which hopefully improve some of that drill and blast accuracy, some of the mining productivities, better understanding of the orebody. But that all then feeds together to what is the asset capable of. Is that the existing target that we had at 650 high-grade tonnes a day? Is it something different? We will see and we will come back to you once we know a bit more.

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Tania Shaw, Golden Star Resources Ltd. - VP of IR & Corporate Affairs [78]

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Thanks, Bryce. At this time, there are no more questions. I would like to thank everybody for joining us on the call, and we look forward to updating you for Q2 in early August. Thank you.