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Edited Transcript of GSC.TO earnings conference call or presentation 31-Jul-19 2:00pm GMT

Q2 2019 Golden Star Resources Ltd Earnings Call

Toronto Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Golden Star Resources Ltd earnings conference call or presentation Wednesday, July 31, 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. - CEO & Director

* Graham Crew

Golden Star Resources Ltd. - Executive VP & COO

* Pieter André van Niekerk

Golden Star Resources Ltd. - Executive VP & CFO

* Steven Mitchel Wasel

Golden Star Resources Ltd. - VP of Exploration

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Conference Call Participants

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* Bryce Adams

CIBC Capital Markets, Research Division - Analyst

* Don DeMarco

National Bank Financial, Inc., Research Division - 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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Operator [1]

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Good morning, and welcome to Golden Star's 2019 Second Quarter Results Conference Call. On the line presenting today we have Andrew Wray, CEO; Andre van Niekerk, CFO; our newly appointed COO, Graham Crew; and Mitch Wasel, VP of Exploration. Also in the room with us today is Martin Raffield, Chief Technical Officer. Following the presentation we will open up the call for questions. Andrew?

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

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Thank you very much, Tanya, and good morning everybody.

On the presentation on Slide 5, a reminder there of Golden Star and its assets with our 2 operating mines at Wassa and Prestea and the Satellite Deposit at Father Brown. You can see there the characteristics of each of those assets.

Moving on to Slide 6, and the results for the second quarter that we've announced this morning. As we said in our release, the results at a consolidated level and at each of the operations were below our expectations for the quarter with just under 50,000 ounces of production at all-in sustaining cost of just over $1,200 an ounce.

Graham in due course will take you through both of the operations and the specifics of where we're seeing performance. And I think more importantly, our plan is that we have to get both of these operations back to the levels that they should be delivering at.

There's a lot of work that we are doing at each of the 2 sites. And that will put in place the ability to deliver from the asset base going forward, will ensure that the 2 operations are appropriately resourced. And as a result, we're in a position to deliver on the potential. You've seen some of that with some of the drilling results during the second quarter, which are very positive and show the further extension of the resource bases. And the other point, just to note, that Andre will give you a little bit more detail on is the credit facility we put in place with Macquarie, which again is an important step in the longer term future of this business.

Moving on to Slide 7. As I mentioned, with those second quarter results coming in below our expectations, where we are at the end of the first half of the year and our expectation that we will see similar levels of production as we go through the second half, we decided to adjust the production guidance for 2019, and as a result the cost guidance. And we're now looking at a consolidated level at 190,000 to 205,000 ounces for the year, which is down from 220,000 to 240,000. At Wassa we expect 150,000 to 160,000 ounces. And that will still be a competitive cost as the mine continues to generate cash for the business.

At Prestea the second half in terms of production will be similar to the first half. So in all, I believe there is 40,000 to 45,000 ounces. And the real focus there is on getting that asset back to deliver both better grade and increased tonnes so we can return it to free cash flow.

I think longer term it's important for us to note the fundamentals at Wassa remain intact, that we're still confident that, that asset will continue to deliver both in terms of increased volumes and also to get back to around about the reserve grade of just over 4 grams a tonne as we deliver better flexibility. And really at Prestea, as we've said previously, the focus there is about returning that asset to free cash generation. And there's a lot of initiatives taking place.

So -- and to take us through the detail on that, I'll hand over to Graham, and welcome Graham to the business.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [3]

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Thanks, Andrew. Yes, moving on to Slide 9, just talking about Wassa. Still a very strong asset, although a disappointing quarter for the operation, quite a few positives. So overall, the material movement for the quarter was up on the previous quarter. A little bit constrained on ore tonnes delivered, this with some stock availability especially in June. And so the larger impact on the quarter was lower grade, which is something that we've seen in the quarter mining the hanging wall stopes in Panel 1, and probably a little bit low than expected. And we'll talk a little bit more about that.

Moving on to Slide 10. So I guess the key points here, kind of a general trend as we put more definition drilling into the ore body is, we're seeing slightly lower grades or the higher tonnages, but that's reflecting in the performance. The key going forward is to get the definition drilling ahead of the plan. So with that in mind, we've drilled 30,000 meters in the first half with similar expectations in the second half of the year, with a target to have 1 million tonnes of measured resource by August for the planning cycle for 2020. So that's a key objective for the geology team on site at Wassa.

And I guess moving on to Slide 11, just again along the similar vein, the plan to improve the predictability, flexibility and productivity at Wassa, some sort of pretty key investments that we're making there. As I mentioned, the plan to have 1 million tonnes defined for the August planning cycle, that ultimately to have 18 months of measured ore in front of us for planning. The next key investment that we're delving into the detailed engineering work for now is the paste plan. And that will deliver us flexibility, especially in Panel 1 there are lot of secondary stopes that we can't currently mine until we get paste fill into the primaries. But that'll give us a lot more flexibility about what material we mine when.

And then just some of the capital investment to start doing, continue to increase the productivity rate. New loader arrived on site this month, new jumbo in quarter four to help with the development and progressive change out of the 40 tonne trucking fleet to 60 tonnes over the next couple of years.

Moving on to Slide 12, overall costs. What we're seeing at Wassa is the overall costs very stable. And the team on site is actually quite mature and very good at maintaining and managing their costs. In terms of guidance, the biggest -- I guess the biggest impact has been the grade. And what we're expecting over the second half is a similar cost base with similar planned production. We're seeing the sort of 4,000 tonne per day mark being reached and starting to get close to being reached. And as I said, good cost discipline and good mining discipline for the operation. So we're pretty confident in the guidance there for second half.

Moving on to Prestea. Challenging story at Prestea. So over the quarter, much lower grade than in the plan. And we've supplemented some of the production there with oxide material from the open pits. So overall, much lower grades than expected. And the key issues in the underground thing, excessive dilution from the stopes, albeit some of the grades we were expecting as we move to that southern portion of the ore body were still lower. But the dilution is a real issue for us.

Moving on to Slide 15. I guess a good illustration there of some of the faulted out waste zones that weren't previously identified in the resource model. And again, that's affected productivity, the team on site having to raise (inaudible) pillars within the stopes which has affected productivity and has affected dilution. There's a few key initiatives already underway such as increasing the definition drilling, targeting 25 by 25, and the longhole QAQC, which is starting to deliver some improved results.

The guidance for the second half is based on similar productivity with higher grades coming from the definition drilling and some of the work that we're doing to reduce the unplanned dilution there. And I think Mitch will talk to some of the extension results that were seeing as well.

Moving on to Slide 16. Again what we're seeing is fairly stable cost base at Prestea. And the main issues in terms of unit cost being what we're able to produce in terms of volumes and grade. As mentioned on the previous slide, productivity for the second half are pretty well similar to the first half, and with some improvements on the ore handling 24 level and some improvements to the rails there and the rock breaker.

Slide 17. I guess the most important thing that we're doing at Prestea at the moment is just really reviewing the whole operation. And we've engaged CSA Global to assist with that. On the positives from that review, overall seeing a robust resource. The plant is well-adapted to what we're doing. And a highly prospective land package, which is something that we're excited about and very good existing infrastructure and relationships.

The key findings and areas that we need to progress and working on, the lack of definition drilling. Some poor alignment of the Alimak raises to the ore body position, lack of geotechnical data and how we're using that geotechnical data. Overall, the raise length, finding that the raise length is too long, and that's affecting productivity and dilution. And no top-level access, which is also affecting out productivity and ability to access the stopes quickly.

Slide 18. So what we're moving to there is a 2-stage approach with all the recommendations from CSA, the kind of lower cost quick wins and then moving into a longer time design review. In short term we're running a series of workshops on site starting in August, really to get the site team onboard with those recommendations and making sure that we are establishing a detailed project plan and a dedicated project team to implement those.

And then CSA is going on to do a Phase 2 piece of work where doing a design review, looking at trade off studies into what is the appropriate Alimak design and then what other, potentially, what other mining methods can we add to improve the flexibility of the operation. So a lot of work happening around those recommendations.

So with that I'll hand over to Mitch to talk about exploration.

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [4]

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All right. Thanks, Graham. Good morning everybody. I'm going to sort of hit the highlights on the exploration for the second half. To start with I'll go with the Wassa Deep drilling program that we've been going -- ongoing since 2018, roughly mid-year, it's almost a year. Drilling has been ongoing there. Currently at the end of the second half we had 8 drill rigs on site. We've completed another 23,000 meters on the project. And the targets have been sort of twofold. We've been doing infill at depth in the material below [2] 1,000 meters. We've been doing inferred to indicated conversion and mineralization above 1,000 and also continuing to step out towards the south.

We have had success again on the 200 meter step outs that we've been doing in the past on Section 18,500 we intersected the deeper F Shoot Mineralization  with an estimated true width of about 19.5 meters at a grade of about 5.4 grams per tonne.

So this hole in particular demonstrates the robustness of this deposit and it's continuation as it plunges towards the south where it remains open, both towards a south down plunge as well as up and down dip.

Okay, the Slide 21. We'll move to the land package along with Eastern Trend of the Ashanti Belt that we have there. And we have numerous targets there that we are just starting to follow-up on. These targets have been on our portfolio for quite a few years now.

We are looking, as you know, at Father Brown. That’s where we're concentrating at this point. But that is only one of the deposits that we have a long strike.

This is a major structural break, which I think is the eastern side of the Ashanti Belt and we hold a large portion of that, roughly 22 kilometers between Wassa down to Father Brown. So numerous targets that we will be looking at following up on in the next 18 to 24 months.

Now let's move over to Father Brown and just give you a brief highlight on that. So moving to Slide 22, on the Father Brown complex. And the image that you're seeing there shows the 2 structures that we've been testing.

The shallower dipping structure, which is on the right-hand side is the Father Brown and the steeper structure which also dips to the west at about 56 to 60 degrees on the left-hand side. We've been drilling there quite extensively with 2 drill rigs. Those programs have come to a halt now at the end of the second quarter. We're pausing at this point in time. And I'll show you the timeline on the next slide and what we're envisioning for the Father Brown complex.

Results have been pretty good so far. We did try to prove concept on the Adoikrom structure to see whether or not the structure continues at depth and did 200 meter step out hole in the projected area of the southerly plunge and intersected a estimated true width of about 8.1 meters and 8.7 grams per tonne. So significantly wider than we've seen in the upper portion of the deposit and roughly twice the grade. So it's looking quite good at depth there. But this mineralization at depth would only be a blue sky sort of a estimate at this point because we only have 2 holes into that deeper proportion at this point. But it still continues down plunge and is open down plunge.

Okay. Let's move on to Slide 23 and I'll sort of run through quickly what we're doing at Father Brown and where we are at this point. As I mentioned, the drill rigs have been paused at the end of the second quarter. We're roughly in the area of the star, which is a decision gate. And this point in time we are looking at various iterations of the model, and we'll be looking at handing it over to my big engineering buddy, Dr. Raffield, who will be taking a look at this, an internal study, will be looking at the economics on it.

If the economics [right there] are viable, then we will be continuing the drilling programs just for a little bit better definition towards the northern portion of the Adoikrom deposit itself, as well as down dip, as I mentioned previously.

Okay. That wraps up Father Brown and Wassa. We'll move over to the Prestea area now and look at what we've been doing at Prestea. What we've been focusing on is drilling from 24 level out of our 262 crosscut. And if you look at the image that's on the left-hand side of this slide, which is on Slide 24, you'll see some of the results that we press released this quarter on some of the intersections in the northern stoping block that we have out there. And it's showing similar widths and grades that we've seen within the West Reef complex that we've been mining thus us far and indicates we do still have some higher grades to the north.

What we're trying to do there is open up another panel of mineralization that can be exploited north of the stopes that we are currently working on, which is the second square box furthest towards the left on the slide that is on the left there.

So that drilling is successful. We are continuing with the infill drilling on that to bring it to a 25 by 25 with the goal being to convert that inferred resource over to an indicated resource for inclusion in resource [year-end] and giving us the flexibility of an additional panel towards the north that should help with our mining sequencing from there. And with that, I will close off on the exploration and I'll pass it over to Andre to cover the financial results.

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Pieter André van Niekerk, Golden Star Resources Ltd. - Executive VP & CFO [5]

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Thank you, Mitch. Good morning, everyone. I'll briefly take you through the financial results for the quarter. Starting with gold revenues for the second quarter, we totaled $62 million from gold sales of approximately 48,700 ounces at an average realized gold price of $1,270 per ounce.

This represents a 20% decrease in revenues compared to the second quarter of 2018. And this is as a result of a 51% drop in gold revenues generated from Prestea and a 1% decrease at Wassa.

However, Wassa's revenue was still 8% higher for the first half of the year compared to 2018. The consolidated mine operating margin was $8.7 million for the quarter. Wassa's mine operating margin increased 32% to $16.5 million for the quarter, offset by $7.9 million mine operating loss incurred at Prestea.

The loss before tax was $5.6 million for the second quarter of 2019, compared to $3.8 million in 2018. At Wassa, income before tax increase to $14.6 million, resulting in income tax expense of $5.3 million for the quarter. This is up from income before tax of $11.4 million, and income tax expense of $3.7 million in Q2 of 2018. Prestea incurred a net loss before tax of $9 million in Q2, compared to $3 million in 2018. In total, the net loss attributable to Golden Star shareholders was $9 million compared to $7 million in Q2 of 2018.

Moving on to the cash flow for the quarter. Wassa operations contributed an additional $21 million in the second quarter, which was partially offset by $5 billion cash operating lost at Prestea. G&A excluding noncash shared-based compensation was $8.5 million. And we made $1 million of interest payments during the quarter. The net cash provided by operating activities totaled $2 million.

We continue to invest in the operations during the quarter. We spent $17 million on capital, of which the majority was spent at Wassa. This included $6.6 million on exploration drilling, $2.5 million on underground development costs, $1.1 million on mobile equipment, and $1.2 million on the tailings storage facility at Wassa.

Finally, we made principal debt repayments of $2.8 million on the Ecobank loans, resulting in a closing cash balance of $66 million at the end of the quarter. Subsequent to the end of the quarter, the company signed a commitment letter for a $60 million credit facility with Macquarie Bank. The credit facility is expected to close during the third quarter and is subject to normal course conditions precedent, which includes the finalization of an inter-creditor agreement with Royal Gold. There is no hedging requirement under the credit facility. And we'll be using the facility to repay the Ecobank Loans, the vendor agreement for the remaining balance being available for general corporate purposes.

The new facility will reduce the cost of capital for the company and significantly reduce the debt service obligations over the next 4 quarters.

Andrew, back to you.

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

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Thank you very much, Andre.

Moving on to Slide 30. I know the focus very much today is obviously on our reported results, our production and cost performance. But I think we should also take a moment or two on the focus on safety, given that's fundamental to the business. And you can see on the slide a range of the metrics we're tracking. Underlying that we are increasingly tracking more leading than lagging indicators. We've got our business to a good level of safety performance. And I think now to move the business on to the next level it's important we start to look increasingly at some of those leading indicators to establish where further improvements lie. Also you can see there in terms of malaria prevention, some very positive results. We're at the best level for 7 years.

On slide 31, a word on corporate responsibility, our CSR practices. Again, a lot of activity, a lot of very innovative projects that we run. And those are improving relationships with the communities where our mines are situated and giving us that sustainable base to run these operations longer term. So our focus there very much will continue.

Just before we hand over to some Q&A, summarizing where we are today. As I said at the beginning, this isn't a quarter we are satisfied with. And we're taking decisive action at Prestea to ensure that we get that operation back on track. We know we need to give the operation at Wassa greater flexibility. It's delivering well, it can deliver better. It can increase volumes. We'll get the grade more consistently around the reserve grade. And as Mitch highlighted, there's still a lot of life to add to that asset. So we're not by any means losing sight of the longer term. The longer term for us remains strongly positive. And we're focusing resource on delivering that.

And with that I'll hand back the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Raj Ray from Desjardins Securities.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [2]

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Few questions from me. The first question is on the Wassa grade for the quarter. And especially around some of the wordings that you had on the press release with respect to the short-range model significantly underperforming on the grade. Now even in the past the tonnage has been increased. Just want to make sure if this was a issue with the quarter in terms of sequencing? Or is there a wider with panel 1 and 2 are you seeing the grade being significantly lower? And is that impacting your overall ounces?

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Andrew Wray, Golden Star Resources Ltd. - CEO & Director [3]

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Raj, it's Andrew. I'll handover to Graham. And I think bottom line is we see that more as a specific issue in the quarter. And it comes back to some of the comments I made around flexibility and the ability to have access to multiple stopes to manage the grade that we're getting. But in terms of the point around where that leads us compared to short-range model and what we're seeing, maybe Graham can give a little bit more detail on that.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [4]

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Thanks, Andrew. Raj, I think the -- what we tend to see, as you noted, is increased tonnage at a slightly lower grade overall. We think like in the quarter, there's some specific areas, especially on the hanging wall and the, I guess the peripheries of the ore body where we think there's a little bit less predictability. As I mentioned, the key to that is making sure that we get that definition drilling in place. So the team on site has been working pretty hard with drillings contractors they have, to increase the productivity and this -- way to go with that. But as Andrew mentioned, having as much as possible of the plan. So if you go back to the start of 2019, there was roughly 50% of our planned ounces were from the measured category and we've chewed through a lot of that. And we're sort of getting to areas where we didn't have measured resource for the plan. So the key is to get that drilling in place so that we can be planning on a measured resource. It's a very complex ore body from that point of view. So as Andrew said, it's a problem in the quarter. We think overall, the investments we're making in drilling in the paste plant gives us the flexibility in the scheduling to be able to manage the grade going forward.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [5]

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And currently you're mining from panel 1 and 2. Is panel 3 also in the mine plan for 2019, or that's for 2020?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [6]

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No, panel 3 is later in the life of mine plan. So we're really just starting in panel 2 now.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [7]

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Okay. And then moving on to Prestea. What sort of capital are you guys looking at with respect to the work you are -- the near-term work you have in front of you as well as the longer-term plan? And given where the cash balance sits, how are you looking to manage your cash flow over the next 12 to 18 months?

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Andrew Wray, Golden Star Resources Ltd. - CEO & Director [8]

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Raj, it's Andrew. Hi. In terms of the short term, and we've set out some of the initiatives, and there is a whole lot more behind the ones that we put in the release. Those are typically low capital intensity. So it's more around operational efficiencies and processes than anything else. So there's not a significant capital commitment in those. I think the real question is, as we redefine and redesign the longer term plan we'll get a better sense there of potential capital required, which will probably be mainly driven around giving us additional flexibility in mining methods, availability of additional tonnes, some of the development that may be necessary for that. So that actively started now. And over the next couple of months we'll be coming up with a more defined view of what that means and then what capital we need to apply. And we'll give greater detail on that within the next 2 to 3 months so you can see some of what that would mean.

But shorter term, as I said, it's not capital-intensive. There's a lot of work to be done. So as a result we think the balance sheet together with the finalization of the Macquarie facility will give us more than enough capacity to handle that.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [9]

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Okay. And if I look at the Prestea near-term plan, I -- even when we're at site I do understand that the definition drilling along with the QA/QC with the -- for the longhole drilling is going to help. But how important is to developing a second level for the 21 level for you to get the flexibility to be able to hit steady state at Prestea? And what's the timing for that second level?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [10]

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Yes. I think -- Graham speaking. That's part of the work that we're doing with CSA at the moment. We are doing development up on the 17 to start to establish the 17 level to 21. Mitch talked about the drilling that we have been doing to the north. Looking at having more panels available, which gives us both flexibility and opportunity to increase productivity. I wouldn't like to give a capital cost or a timeframe on that yet because we have got more work to do on that.

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Raj Udayan Ray, Desjardins Securities Inc., Research Division - Analyst [11]

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Okay. And as part of the review, one last question for me, have you also looked at how much time you are going to give to Prestea before, let's say, in the worst-case scenario take a decision to either suspend or -- the operation. And in that scenario, is there recourse that Royal Gold has if you decide to, in the future, take a decision on Prestea to suspend operation?

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Andrew Wray, Golden Star Resources Ltd. - CEO & Director [12]

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Raj, it's Andrew again. Look, at this point I think the focus is very much that we've got a clear plan both short-term and then longer term to get that operation back to where it needs to be. You are right, the timing is critical in that. And that's why immediately one of the first things that I did was start the process of redesigning that mine so that we don't report more quarters such as quarter two and minimize the cash burn. And that's really where those short-term measures are aimed at. It's staunching that whilst we come up with a more credible, longer-term plan for the operation. So our focus is on doing that as soon as we possibly can and ensuring that it's not a question of cash bleed for any longer than necessary. Obviously there are a range of other options. For the time being, I think we're quite clear and we've been clear what it is we're doing. In terms of Royal Gold, Andre, I'll let you answer that one.

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Pieter André van Niekerk, Golden Star Resources Ltd. - Executive VP & CFO [13]

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Yes, look, there's no real recourse. The streaming agreement is written as such that it considers both the Wassa and Prestea operation and production we just have to be delivered as per the mine plan from either of those operation.

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Operator [14]

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Your next question comes from the line of Don DeMarco from National Bank Financials.

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Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [15]

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I wanted to circle back on the grades at Wassa. Reading through the press release I see that you expected those grades in the areas that you're going to be mining to be lower grade than you originally planned. So I'm just curious, like the original plan, like listening to the answer you gave to Raj, was that original plan just based on maybe measured grades in the measured category? And then now that you're doing more definition drilling, you're finding that the grades are lower?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [16]

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Yes, hi. It's Graham speaking. Yes, so where we're seeing the grades lower is where we didn't have the additional definition drilling. So as we've defined, especially as I mentioned, the peripheries of the ore body, the hanging wall in, et cetera, we're tending to see lower grades. And that's been a trend over the history of the operation. And I guess the quarter or in the quarter it was more specific to the areas that we were mining that those grades were affected. So overall, we -- as we mentioned, that's about increasing the flexibility in the mine planning, getting more definition drilling in front of the planning cycle.

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Don DeMarco, National Bank Financial, Inc., Research Division - Analyst [17]

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Okay, thanks. And so I guess is there any read-throughs for this in terms of 2020? I mean, what's the level of definition drilling that's been done looking out a year ahead? And I guess this year you had 50% of the ounces were in the measured category heading into the year. That gives a potential upside, downside in grade? What are your thoughts on grade looking out a little further?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [18]

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Yes, Graham again. Look, the plan for the next year has the grade sort of returning to reserve level on average. And we, as I mentioned, we're sort of targeting 1 million tonnes of measured by August, which will enable us to get that into the model and then into the plan for the 2020 planning cycle. And at that point we'll have a much better sort of idea on what percentage that sort of takes, up to about 80% of the planned production for 2020. So that's a significant improvement year-on-year with a longer term plan to try and get that up to sort of 18 months so that when any -- whenever we're doing an annual planning cycle, we've pretty much got all of the material in measured category.

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Operator [19]

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Your next question comes from the line of Justin Chan from Numis Securities.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [20]

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The first one is on Wassa. Would it be fair to characterize where you have lower definition drilling? Are you finding that you have lower in-situ grade? Or is it more geometry and dilution related? Yes, I'll ask that first for now.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [21]

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That’s me again. Graham here. Thanks for the question. It's if you -- I think there was a slide, I won't quote the slide number now. But there was a slide that sort of showed what we mine compared to what was in the original mine plan for 2019. And what that shows is you getting some changes both to the geometry and grade distribution. We were on site a couple of weeks ago. Mitch used the term fractal to describe the sort of ore body geometry at Wassa. There's no kind of structural controls to the ore body, so it's really -- it's all down to what you define on the drill bit. So we do we tend to get changes to the interpretation of the geometry as we put more holes into the ore body. Again kind of reiterating the point that highlights the importance of getting that definition drilling in front of the plan.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [22]

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Okay, thanks. That's quite helpful. So I guess it's -- at this point it's relatively hard to correct and tell in-situ to in-situ because perhaps the answers are there. But they're not quite in the same location. Is that fair to say?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [23]

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Yes, reconciliation is definitely a challenge for us model-to-model and then model-to-mine. So again, just getting more drill holes into the ground and getting that model to measure category helps us a lot with the planning.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [24]

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Okay. And now just 2 more from me. One is also related to Wassa. With that in mind does that give you any, I guess, how does that feed into your targets for the tonnage rates going forward, so up to 4,000 and then beyond that? And that's my Wassa question.

And then at Prestea how comfortable are you with the overall geological model and the reserve grade there. Notwithstanding the dilution issues. I guess just looking at reserve grade there. How does that -- are you looking at perhaps the lower grade as you plan how to treat the mine going forward even with a different mining method, so just sub-level.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [25]

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Sorry, I got caught on the second question, so we might come back to the first question. But I'll answer the second question first, Prestea.

Look, one of the good outcomes from the CSA review, one of the real positives was the robustness of the resource model, albeit the drill density, we want more drill density for the planning and to better plan for productivity and dilution control. But overall, the resource is robust and sound. So in terms of the reserve grade, we've got more work to do on the mine plan and what is the most appropriate mine plan going forward. I think some of the things that we've talked about such as a reduction in the Alimak height, although there's setup work to do with that, will definitely help us with dilution. And we'll be able to get a better handle on what the reserve grade in terms of planned dilution and factors for unplanned dilution will be. But certainly, they are the things that we need to improve to bring it back to a sustainable reserve grade and production. And you might need to repeat the first question.

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Andrew Wray, Golden Star Resources Ltd. - CEO & Director [26]

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Just on -- maybe I'll take your first question, Justin, on the tonnage volumes at Wassa. I think at the start of the year we indicated we thought this year would be around about 3,500 tonnes a day on average. And we were planning to get to 4,000 tonnes a day by the end of next year. That remains very much the case. And as I said at the end, what we need to do is ensure that we keep that longer term focus as well because the investment in the paste plant that Graham talked about, the investment in fleet are critical to enable us to continue to push those volumes. So the target for this year will be at or above that target. The target for next year very much remains intact, and the investment will ensure that. And then, as we've been discussing, we need to make sure we have the mining flexibility and sufficient forward information to ensure that the grade is managed closer to reserve grade. And that way you'll continue to see that asset grow, deliver. Cost profile is very competitive. And the life from the work that Mitch and the team have done continues to grow. So I think really all of those are the focus elements for Wassa, but very much the tonnage is on track and nothing changed there.

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Operator [27]

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Your next question comes from the line of Bryce Adams from CIBC.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [28]

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Quite a few on the Wassa reserve grades. I'll try and squeeze one more out of it if I can. And I guess all of the good questions have been taken. But just zooming back to a bit of a higher level, with the last year-end resource update, tonnes and ounces went up but grades came down from 4.1 to about 3.9. And you talked about the trend of adding in drill definition and seeing the lower grades. So if that trend holds true, then for the next year-end update, would you expect more ounces at slightly lower grade to repeat again?

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [29]

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Let me take that question if I could, Bryce. Looking at the drilling, I think when you referred to ounces and stuff, the resource you're looking at indicated and inferred combined I would assume.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [30]

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More focused on the reserves, Mitch.

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Steven Mitchel Wasel, Golden Star Resources Ltd. - VP of Exploration [31]

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On the reserves themselves, okay. I would -- I guess taking a look at the reserve base on that I guess I'll have to hand it over back to Graham again on that one. That was a resource question. So I'll let Graham handle that one. Sorry.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [32]

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Yes, Bryce, the -- I think, yes, we do see a general trend as we put more drill holes that we get a lot of grade at higher tonnage. Yes, so potentially we could see a little reduction in reserve grade for the next year plan. But again, it's about doing the work. It's about getting the drill holes in place, and at least we know what we're mining to. But the key investments to get flexibility into the plan I think are what's going to deliver the long-term productivity and value at Wassa.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [33]

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All right. So I will have to just sit tight for a couple of quarters and see what the new update looks like then. From the observations of CSA, what -- Graham, for you again, what would you say would be the easiest wins to go after there?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [34]

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Yes, Bryce, I think in the short term, there's a number of kind of operational procedural things that we need to support the team to get in place and embed. And what we -- I guess what we plan to do is put a pretty dedicated project team on to those tasks. So try and take the focus. Everyone is really working hard there to try and improve, but really just focusing on 2 or 3 improvements at a time. And just documenting what is the repeatable process that we're going to use. So for example, just making sure that Alimak is properly positioned on the reef. So it's not so much just down to what miner we have and they think. We actually have a defined process around that from capturing the geological information, how that's transferred into the plan and then how that passed on to the miner. Yes, those sort of process improvements I think is where there's quite a number of quick wins. We just need the focused time and attention to make sure that we -- outside of what we're doing day-to-day, we're actually taking the time to process that, document that, train people in that, give them the opportunity to implement that, as an example.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [35]

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Okay. I guess one of the things I read was increasing the supervision. And that sounds like bit of a soft skill or soft (inaudible) to go after. But when you talk about in terms of position of Alimak on the reef I think becomes pretty hard than when you hear it like that. With no access to the top cut, is there any way you can quantify the impact of taxiing up and down one stope to access the next one? I mean, from my perspective, and I haven't been underground at Prestea, but that was one of the biggest design flaws that I could think of. Is it quantifiable at all?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [36]

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It's a good question. I haven't quantified it. And -- but I agree with you. It's one of the key impediments to getting the level of productivity that we need from that ore body. So yes, that top access might take that away, Bryce, and see what the quantified number is. But it's definitely an impact because you've got to leave that platform in place to do that taxiing.

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Bryce Adams, CIBC Capital Markets, Research Division - Analyst [37]

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Yes. So that might not be the easiest win to go after, but quite impactful and would require a fairly significant capital investment is the right way to think about the top cut?

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [38]

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Yes, it's about how do you get that access and how quickly can you get that access in place. 17 to 21 level, for example, we need to mine a decline to access areas of that -- all those panels at that level. So that takes time to get that time and capital to get that in place.

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Unidentified Company Representative, [39]

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Thanks, Bryce. At this time that's all the time we have for questions today. We look forward to updating you for Q3 in November. And this concludes our call. Thank you for everybody for calling in.

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Graham Crew, Golden Star Resources Ltd. - Executive VP & COO [40]

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Thanks, everyone.

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Andrew Wray, Golden Star Resources Ltd. - CEO & Director [41]

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Thank you.

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Operator [42]

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Now this does conclude today's conference call. You may now disconnect.