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spk01: Good morning, ladies and gentlemen, and welcome to the Golden Star Resources third quarter 2021 results conference call. At this time, all lines are in listen-only mode, and following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 2, 2021. I would now like to turn the conference over to Mr. Michael Stoner. Please go ahead.
spk07: Thank you very much, Kelsey, and thank you everyone for joining us for our Q3 2021 results call, where we will obviously also address the transaction that we announced yesterday morning. On slide two, I'd like to point you to the disclaimer, particularly on forward-looking statements. The presentation is available on our website, and we'll leave you to read that in your own time. On the call, I'm joined by Andrew Ray, our CEO, Graham Crewe, our COO, Paul Thompson, our CFO, and then Mitch Russell, who is our VP Exploration. And with that, I will hand over to Andrew to kick off the call. Thank you.
spk05: Thank you very much, Michael, and hello to everybody. I'll start on slide four where very briefly there's a reminder of what and where we are as a business together there with the current and future plans for WASA. Moving on, and as Michael mentioned on slide five there, before we get into the Q3 overview and results, We should really talk about yesterday's announcement where we announced that Chiffon Gold is acquiring Golden Star in an all-cash offer at $3.91 US per share, which equates to value for the business of approximately $470. million U.S. dollars. Xifeng, for those that are not familiar, is an established gold mining operator listed in Shanghai, market cap of 4.3 billion U.S. They currently operate five assets, four of those in China and then the Sepon mine in Laos. They're quite a few years ago from MMG. There is no financing condition on this transaction, just to note and make that clear. In terms of the timeline, you can see there we're expecting January, so probably mid-January, we expect at this point in time in terms of the likely closing of the transaction once we've got through various uh approvals shareholder approvals regulatory approvals and other conditions met in terms of those approvals beyond the shareholder approvals i think the key ones really to mention are in ghana there will be the no objection approval sought from the minister in order for that the transaction to proceed and then the three separate regulatory approvals that Shifang are already working on in China, which are the standard ones for a deal of this nature. We'll come back to that, I'm sure, when we get to Q&A, but that just gives you an overview of the transaction itself. You can see what that value equates to in terms of the various premier to different points in time. As I said, we'll happily take questions on that once we've gone through the Q3 results. Moving on to slide six on those results there. I think overall, pretty solid quarter. The business, no real surprises. The results, fairly much in line. with our expectations. Graham will talk a little bit more about the operations and the key focus areas there and Paul, what that means in terms of financials and the balance sheet. But, you know, the key feature really, I think, is the above and beyond the underground run of mine. It's the continued processing of the low-grade stockpiles which we used to offset some of the lower volumes in terms of underground material. We continue to invest in terms of our capital program in the business for that future growth from WASA. Some good in-mine exploration results that Mitch will talk a little bit about later on and some further optimization of the balance sheet. during the quarter. And then on the Paceville restart and commissioning, Graham will give a little bit of detail around how that process is progressing. Moving on to slide seven, in terms of health and safety, I think the real focus there continues to be managing COVID. And we've certainly seen a noticeable uptick over Q3 in cases and case rates, both where we are in the western region in Ghana as well as the country as a whole. But the screening protocols we've got in place have helped us to capture most of that and also minimize the impact on operations. We've spoken a little bit previously about some of the expat jumbo operators, which, as it says here, we addressed in the second quarter. by bringing in more operators, more Ghanaian operators, so we get around that problem in terms of some of the travel inconveniences and barriers. And we've seen continued progress on development rates during the quarter, which is encouraging. And then just one final one from me before I hand over to Graham. In terms of the outlook, I think there the message is really with those results and just the fourth quarter to come, very much on track to deliver on guidance for the full year. So with that, I'll hand over to Graham to give a bit more detail on the operation.
spk08: Thanks, Andrew. So moving over to slide 10. Just a little bit more information on the PACE backfill system commissioning. I think everyone's aware now that we suspended that back in Q1. We've been going on doing test work with a group called Minefill Services in Australia in collaboration with University of Mines and Technology in Ghana. The testing work has gone well. We moved on to filling a second test using the maximum cement percentage, which is 10%. That was completed during October, and we've got a set of 28-day test results which show that it's meeting the design criteria at that slightly higher percent of cement content. And we're continuing. The key thing really for us is if there's any degradation after 56%, We've also identified some alternative binder mixes that are available in country and we're moving on to now during this quarter we're moving on to another testo using an alternative slag based or a binder with a higher percentage of slag based binder within it. So that's showing really good results at a lab level so looking forward to running that through the plant and then we should be full production for 2022. Moving on to the quarter, as Andrew touched on, ore tons were down a little bit. We restricted, as we mentioned when we talked about the revised plan for the second half, a little bit restricted on available mining areas. So, you know, that average of around 3,700 tons per day. A little bit of a grade benefit late in the quarter. We did some work on some pillar recovery back up in panel one that helped boost the grade late in the quarter. So that was a pleasing result to see there. Development, as Andrew said, continued improvement for what we've seen there. Still more work to do to build our development imagery and increase flexibility, but With that and obviously the pace bill coming on, things are looking in a better position for 2022 and the total production there that you can see. On the cost side, obviously the reduced volumes have had an impact on the unit costs, processing costs supported by the low-grade stockpiles, as Andrew mentioned. And you can see the flow-on effect of the lower ounces and the continued operating spend, but importantly, the capital investment continuing, moving on to doing work on the ventilation system and some other capital investments over the quarter. So all in all, increasing cost trend there, but on the back of some slightly lower production than we expected. had an original plan but continuing to invest. Just in terms of the upper mine drilling, we put out a release on this. This is some of the area that we're planning to bring into the reserve. We've been doing some infill drilling in those areas and that's highlighted some higher grade parts of that area of the ore body that we previously hadn't identified. that's looking really positive for the upper mine area as we move through that drilling program. And with that, I'll hand over to Paul to talk about the financial results.
spk02: Thank you, Graeme. If we go to slide 15, please. So Q3 2021 has been a solid quarter for Golden Star. So just to put things into context when comparing to Q3 2020, that quarter last year can be considered as more of an exceptional quarter due to primarily two factors. So the gold price in that quarter was essentially at all time high. So during that quarter, we actually realized a spot price average of $19.61 with an average total post the incorporation of the stream of $18.13 The other thing to note is that the underground mining rate was very high. We almost had 5,000 tons per day. So looking at Q3 this year, so in accordance with the 2021 restated guidance that we issued in June 2021, we always expected a dip in production in this quarter. I'm pleased to say that our site team has worked really hard to actually deliver production with a significant contribution being made from the stockpiles. Turning to the financial performance, so despite slightly lower gold ounces sold, so we sold 38.4 thousand ounces, Q3 was a reasonable quarter from a financial perspective. With respect to the macro environment and the strong gold price, the business realized an average spot price of £17.53 per ounce, or £16.76, post the impact of the Royal Gold Stream. So this then resulted in revenues of $64.3 million. The minor operating profit was £19.5 million. Of note, as Graham alluded to, the cost of sales have increased by 18% due to a combination of factors, so that's higher drilling costs, processing more low-grade materials from the stockpiles, and the cost pressures being experienced in the broader industry. So these primarily relate to labor, fuel, and consumables. So we've experienced higher drilling costs due to the rescheduling of the mine plan during the quarter, and that relates to grade control drilling. If we turn to depreciation, this is increased in comparison to the prior year quarter due to the completion of a number of capital projects in 2020 and 2021. This obviously has an impact on earnings, but not on the cash flow. The gain in the fair value of the derivative financial instruments was $0.7 million. So this relates to the gain in the quarter and the hedge positions, which again is a non-cash item. Turning to the adjusted EBITDA, that was $21.2 million. So there's a number of adjustments to EBITDA which were included in the other expenses category, and these relate to two items primarily. So firstly, there's a non-cash allowance recognized under deferred consideration for the Prestia disposal of $13.3 million. And in aggregate, that's $32.9 million for 2021 year to date. Secondly, there was a charge of $1.1 million in respect of corporate development costs. So turning to the adjusted net income attributable shareholders, that was $0.2 million, or zero cents per share rounded, obviously. This is a function of the following factors. So we'd lower revenues due to the lower sales ounces, which was driven by the lower production ounces. And then there was obviously the lower realized price in comparison to Q3 2020 in terms of those record prices achieved. It was the increased cost of sales for the direct mining costs, as I mentioned, for the low-grade stockpile cost, which is non-cash. And then we've got the increased depreciation due to the higher depreciable asset base cost. Then we had the FDR settlement, as I mentioned, in terms of the $13.3 million derecognition loss. Turning to slide 16 in terms of the balance sheet, I'm pleased to report that we've continued to reposition the balance sheet to provide a stronger, more robust base for the business. So there were two key notable events during the quarter. Firstly, we had the convertible debenture repayment and settlement in cash of $51.5 million. And secondly, we had the drawdown of the revolver credit facility from Macquarie. So this takes the total amount drawn on the RCF to $90 million. With these two actions, we've actually lowered the overall cost of capital and we've pushed out the principal repayment profile So with the cash position at the end of the quarter being $50.5 million, the net debt position was $31.9 million. And this has all been done whilst investing $13.3 million of total capex during the quarter. Just with reference to the hedge program, we've got the hedge program in place, which delivers 12,500 ounces per quarter to the end of Q1 2024. We've got a floor price of 1,600. and a ceiling is probably circa 2150 on average, which provides a sensible window for the business going forward. Just turning to the next slide on the net cash flow bridge. Cash management during the quarter was a key consideration for the business, particularly with the repayment of the convertible debenture. So we started the quarter with $72.7 million in preparation for the convertible debenture repayment, and we ended the quarter with a healthy cash balance of 50.5. The key things to note on the cash flow bridge for the quarter as follows. So we've got WASA's operational cash generation of 10.6 million. So there continues to be capital investment to underpin the future development of WASA. This was $11.1 million during the quarter. Then we continued to invest in exploration with $3.2 million being spent in Q3. With respect to the financing activities, this reflects the convertible debenture repayment and settlement and the Macquarie facility drawdown. Another point to note is that the ATM has not been used during Q3 2020. so there are no ATM proceeds included within the financials for the quarter. With that, I'll hand over to Mitch, who's going to run through the exploration and geology section, which takes us to slide 19, please.
spk03: Thanks, Paul. Slide 19 just is a brief overview of where we were focusing our exploration efforts in 21. The majority of the focus was up at the Wausau mining lease where we continue to test both up and down dip of the current reserves. The guidance we have is about $14 million. Actually, the forecast is probably going to come in a little bit under that. We should be somewhere between $11 and $12 million for the year. So let's proceed now over onto slide number 20. Slide 20 is a longitudinal section of the WASA deposit that shows the ISO shell, which is in red there, which is the 1.5 gram per ton. The dotted lines that you see both up dip and down dip are the areas of focus for 2021 drilling. We've had success in both locations. One hole, it was drilled in 2020, late 2020, where we intersected 18 meters at 3.5 or 3.6 grams per ton. We've actually gone in there with the underground drill rigs and drilled 50 meters to the north and 125 meters to the south on that one and actually have it drilled off to a density that we'll be able to include into the reserves for year end. The up dip has been quite successful as well. We've delineated the zone that's roughly 125 meters along strike now with some new results coming in there with duplicated results from the previous hole, which was 20 meters at 6.9 and 50 meters to the south, we intersected 19 meters at 4.6. To the north of that particular hole, we intersected several other zones that are looking interesting as well that we'll follow up with in 2020 with that drilling there. Progressing over to slide number 21 just shows some of the near-mine exploration targets outside of the Wausau main deposit itself. You'll see up in the top right-hand side the near-mine stuff at Mideast and Dead Man's Hill, ME and BMH drilling that we did there. We drilled four holes up there. Intersected mineralization where we anticipated. The zones are there. I did not intersect any high-grade mineralization that we were looking for full closures up there. One interesting section we did do is the last fence you see on that south action PIM or the sack filling that's on the lower left-hand corner there. The last fence we drilled, which is shown on the section off to the right-hand side there, intersected mineralization about 120 meters down. Dip was the last known mineralization there at about 8.3 meters at 4.2 grams per tonne. Essentially, the exploration programs are wrapping up for the year. We are going to be concentrating on the upper mine drilling that Graham pointed out there, and that's going to be the main focus for the remaining part of the year. On that, I'll hand back over to Andrew just to give you a brief on the forecast and the PEA. Back to you, Andrew.
spk05: Thanks very much, Mitch. So just finishing on slide 22, where you can see there the focus areas for the business, together with the longer term targets. And as I mentioned at the outset, sound progress over quarter three. The only other thing I'd finish on was notwithstanding the news yesterday, everyone remains very focused on delivering to plan and the target for the year and beyond. With that, I'll hand back to Kelsey and we can go to Q&A.
spk01: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question does come from Bryce Adams from CIBC Capital. Please go ahead.
spk06: Good morning and good afternoon. Thanks for taking my question. Firstly, the deal price announced yesterday, that's a premium to recent trading, but it's also a decent discount to the PEA filed earlier in the year. So what was your approach to balancing these two factors And why pursue a sale when there's a lot of value in the PEA that could be realized?
spk05: Hi, Bryce. It's Andrew. I'll take that question. In terms of the price and the deal price, I think it's the same equation that you look at with any level of interest in terms of trying to assess the trade-off between the long-term delivery, the risked long-term delivery versus what is on the table today. As you say, the PEA does have potential to deliver a lot of value, although we're conscious that that's a few years out. There's a fair bit of investment that needs to go in in order to deliver that. And as you can see at the moment, we're reinvesting all the capital out of the business back into the business. So there's a certain reliance on gold prices holding up where they are. So, you know, with that balance in mind and the price offered both to current trading as well as, you know, some of the recent average levels we've been trading at, we felt that, you know, that offered a good opportunity to take to shareholders.
spk06: Okay, understood. Secondly, the spread between current trading levels and the deal price is fairly wide. As you progress towards closing the transaction, what do you see as the key risks here and do they somewhat explain the spread in the marketplace?
spk05: Yeah, the spread, I think, last night, I haven't seen where we're trading today, was about 6%, I think, off the offer price. And as you say, that's probably linked to views around some of the approvals required. As I mentioned, there's no financing condition, so I don't think there's an issue there. It's probably looking to see how things progress in terms of the approvals in China, where there's three main approvals required which are fairly standard ones and then the no objection approval in Ghana that typically comes at the end of the process and obviously shareholder votes as well so you know as we go through I think people get a bit more comfortable potentially it trades closer to the deal price but there's other people more expert than I am on that I mean all I would say is that you know, the dialogue we've had with Chiffon through the process is that they've had positive feedback when they've approached the regulators in China to move ahead with the transaction. And for deals of this nature, which, you know, for Chiffon, it's fairly middle of the fairway transaction. There's not a lot of history of those being rejected by the Chinese regulatory process. And in Ghana, We've made sure that we've had a good level of dialogue throughout with the authorities there so that they're comfortable with what is happening, what is planned, and what they need to do as part of their process. So I think we've positioned ourselves as well as we can in that respect. And then the shareholder... Votes are planned probably later in December. So I think, you know, from my perspective, that's what I can say. The market will take its own view of where it needs to trade, but we don't see a lot of risk in that.
spk06: Okay, thanks. You mentioned no financing conditions, but could you go through the language in the press release around the potential for a co-buyer acquiring 38% of the Golden Star shares? What's driving that? And I don't know if you can talk to it, but what's the probability that Xifeng go with a partner or go it alone?
spk05: So the partner they're referring to is a fund of a bank, so CIIT Fund, part of Industrial Bank. So it's a major Chinese bank. And the way I would look at that is it's effectively bank funding. And there are some advantages to that, particularly in terms of timing and approvals. Given on the Shanghai Exchange, they have a series of tests which are a bit like the class tests in the UK, which trigger certain processes if you go above certain ratios. So with funding it this way, it enables them to stay below some of those ratios. So there's benefits there. But it also means that they keep additional cash availability both for further investment into the business as well as other opportunities they may be looking at given, I think, you know, there's some fairly ambitious growth plans on the side of Chiffon. But from our perspective, the key was to ensure that at announcement this was fully funded by the cash resources that Chiffon themselves have. and then if they decide that it makes more sense to finance ultimately that way through the planned bringing on board of the fund, then structurally that's very easy to do and potentially gives them a bit more flexibility and firepower.
spk06: Okay, so just from my understanding then, their preference would be to go without the partner, but it might be advantageous for the regulatory approvals?
spk05: I don't think I can really speak for them in terms of what their preferences are. They've highlighted to us that they may decide to go this direction. I think they've got the flexibility to go both routes, whatever really suits them. From our perspective, it doesn't really change anything in terms of the transaction. I think from memory, if you also look at the way that Shandong structured the acquisition of Cardinal, I think they did something very similar. by bringing in this sort of financing partner. So it's a sort of fairly well-trodden path for Chinese listed companies.
spk06: Okay. Thanks for that. Graham, my apologies. No questions from me this time around, but thanks to everyone. Cheers.
spk05: Thanks.
spk01: Ladies and gentlemen, as a reminder, should you have a question, please go ahead and press the star followed by the one. Your next question does come from Daniel McConvey from Rasport Investments. Please go ahead.
spk04: Good day, Andrew, everyone. Thank you. A couple of questions. One, I was going to ask you, first off on the no objection permit, Andrew, when would you expect that one?
spk05: That typically, Dan, comes right at the end of the process. So, you know, once I would have thought most of the other conditions are And I guess we've just got to be conscious of when that actually falls calendar-wise. So late December, early January, it might be difficult to get hold of the right people. So we would expect that probably more to be towards the second week of January as we get to the very end of the process and closing.
spk04: Okay. Thank you. Andrew, can you give us a bit of the history of dealing with Xinfeng and of the acquisition? I know it's not for your decision or your call, but how is the transition just in terms of employees and management, et cetera, been talked about between the two companies?
spk05: Yes, by all means. We've been talking for probably about six months, almost exactly, I think, since we first had an approach. And, you know, over that time, obviously got to know each other a little bit better, got to understand what the capacity and capability of Chiffon are. They've had a team in country for quite some time. As I think everybody knows, they were previously looking at Bibiani and they kept a presence in Ghana on the ground. So they've developed some relationships in country as well, which I think is important. You know, through that process, key for us was understanding capability to take the operation on their views and level of interest in the PEA plan and delivering the PEA plan, given we know that's important to other stakeholders in country. Our CSR programs and the way that we engage and do business there, and I think they've been very impressed by what they see and keen to take those on. And then to transition, which is really the phase we're in now of ensuring that our employees, be they in Ghana or the UK, are fairly treated through that process. And I think, if I'm honest, most of the impact obviously comes in London, given that they don't need a head office in London. In Ghana, the message is very much they're keen to push the development of an investment in WASA and they're going to need people to be able to do that. So a real focus there on the team and on the skills in place. They'll have people at site from end of this week or probably next week at some stage in order to then you know get that more day-to-day familiarity and build those relationships as we go through the next two months so that you know we achieve as smooth a handover as we can okay so they they were people at site right through the closing yes yeah great
spk04: Great. Andrew, thank you very much. All the best. You're welcome.
spk05: Cheers. Thank you.
spk01: There are no further questions at this time. You may please proceed.
spk05: Okay. Thank you very much. If there is anything, then you've got all of our contact details and be more than happy to follow up on any of those points and to see how things progress. So appreciate the time today. And thank you very much again to everybody.
spk01: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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