Golden Star Resources : Second Quarter 2014 Financial Results

TORONTO, ONTARIO--(Marketwired - July 30, 2014) - Golden Star Resources (TSX:GSC)(NYSE MKT:GSS)(GHANA:GSR) today reports its financial results for the quarter ended June 30, 2014 ("the second quarter" or "the period"). All references to currency are to US dollars.

• Gold sold during the second quarter was 61,721 ounces, a decline from 65,812 ounces sold during the first quarter 2014 due to the high level of rainfall in the period
  
  
• Revenues for the second quarter decreased to $79.6 million from $85.0 million in the prior quarter due to fewer ounces sold
  
  
• Mine operating expenses for the second quarter were reduced 11% from the prior quarter to $74.0 million, the second consecutive quarter of lower expenses
  
  
• Consolidated cash operating costs per ounce1 were consistent with the first quarter at $1,201, despite fewer ounces produced
  
  
• Adjusted net loss attributable to shareholders1 for the second quarter improved to $7.5 million, from a loss of $12.2 million for the prior quarter
  
  
• Consolidated cash balance at quarter end was $43.4 million, with $10 million remaining undrawn on existing loan facility
  
  
• Wassa resource development drilling continues to deliver strong results with wide intersections of high grades on step out holes
  
  
• Internal study on revised development plan for Prestea Underground indicates positive economics and decision taken to progress to PEA
  
  
• 2014 production guidance revised downward to 260,000 - 280,000 ounces as rainfall and power outages impact mining and processing
  
  

1 See "Non GAAP Financial Measures".

Sam Coetzer, President and CEO of Golden Star, commented:

"Although this quarter's production was below our expectations I am very pleased with our team's success in reducing mining costs. Mine operating expenses have been reduced by over 25% since early 2013 as we fulfil on our stated goal of cost reduction. The Company's long term focus on developing new low cost opportunities is progressing well. We expect to complete the PEA's on Wassa Underground and Prestea Underground in the third and fourth quarter respectively. Guidance has been adjusted downward by 12% to reflect the production shortfall year to date and revised our capex budget to fit this current situation. I remain optimistic that the expected increase in production combined with our lower cost base will deliver improved results for the remainder of the year."

The Company will conduct a conference call and webcast tomorrow to discuss these results at 2:00 pm EDT.

The webcast will also be available after the call at www.gsr.com

Company Profile:

Golden Star Resources (NYSE MKT:GSS)(TSX:GSC)(GHANA:GSR) ("Golden Star" or the "Company") is an established gold mining company that holds a 90% interest in both the Bogoso and Wassa open-pit gold mines in Ghana. The Company also has a 90% interest in the Prestea Underground mine in Ghana. Golden Star has Mineral Reserves of 3.9 million ounces and 6.4 million ounces in Measured and Indicated Mineral Resources. In 2013, Golden Star sold 331,000 ounces of gold and in 2014 the Company expects to produce 260,000 - 280,000 ounces. The Company offers investors leveraged exposure to the gold price in a stable African mining jurisdiction with exploration and development upside potential.

For further information regarding Golden Star's Mineral Reserves and Mineral Resources, see Golden Star's Annual Information Form for the year ended December 31, 2013, available on SEDAR at www.sedar.com.

Summary of Consolidated Operational and Financial Results:

1 See "Non GAAP Financial Measures".

Review of Financial Performance

Revenues for the second quarter of 2014 decreased to $79.6 million compared to $85.0 million in the prior quarter, due to fewer ounces of gold sold at Wassa. The average realized gold price over the period was $1,289 per ounce, in line with the realized prices in the first quarter of 2014.

Mine operating expenses for the second quarter decreased 11% to $74.0 million from $83.0 million in the prior quarter due to lower tonnes mined and processed at both operations as well as operational efficiencies achieved at Wassa. The Company expects mine operating expenses to decrease over the remainder of the year at Wassa and Bogoso.

Consolidated cash operating costs per ounce totaled $1,201 for the second quarter, similar to cash operating costs per ounce of $1,206 in the first quarter. Mine operating expenses were lower at both operations, however cash operating costs per ounce were impacted by fewer ounces of gold produced. Full year cash operating costs are now expected to be between $1,000 - 1,100 per ounce.

Adjusted net loss attributable to Golden Star shareholders for the second quarter totaled $7.5 million, compared to an adjusted net loss of $12.2 million in the prior quarter. This was due to an improvement in operating margin and a 28% reduction in general and administrative expenses.

The net loss attributable to shareholders was $5.2 million in the second quarter compared to $22.4 million in the first quarter 2014, primarily as a result of a non-cash fair value gain in the Company's convertible debentures for the second quarter of $2.4 million compared to a non-cash fair value loss of $10.2 million in the prior quarter.

Cash provided by operations totaled $0.9 million for the second quarter. Capital expenditures at Wassa and Bogoso for the second quarter totaled $6.3 million, including $2.0 million of resource development drilling at Wassa. Capital expenditure for the remainder of the year is expected to be approximately $18 million as forecast total capital expenditure for the year is reduced. This reduction was achieved as a result of capital expenditure savings in the Bogoso pushbacks, a reduction in expenditure at non-core development projects and the deferral of construction of a new tailings facility at Wassa after tailings treatment process redesign.

Consolidated cash balance was $43.4 million at June 30, 2014. Accounts payable and the Company's cash balance were carefully managed over the period. Certain accounts payable notably that owing to the Volta River Authority, were deferred by agreement with the creditors. Cash flow from operations is expected to improve over the remainder of the year as access to high grade ore at Bogoso is now possible at the end of the rainy season.

Review of Operational Performance

Wassa Operations

1 See "Non GAAP Financial Measures".

Gold produced and sold totaled 29,446 ounces for second quarter, a 15% decline from the 34,838 ounces sold during the previous quarter. Lower production was a result of 9% lower grade processed and 6% fewer tonnes processed. Ore tonnes mined increased in the period however ore tonnes processed were lower due to the change to a higher ratio of fresh ore fed to the processing plant. The Wassa plant ran at rated capacity in the second quarter. The gold production forecast from Wassa from has been reduced to 115,000 - 125,000 ounces for the full year as grade is expected to be lower than initially budgeted but still in line with Mineral Reserve grade.

Mine operating expenses for Wassa totaled $29.4 million in the second quarter of 2014, $4.7 million lower than the $34.1 million incurred during first quarter of 2014. The 14% reduction in expenses is mainly related to improved operational efficiencies and lower haulage costs associated with the cessation of mining in the Father Brown pit.

Wassa's cash operating cost per ounce for the second quarter totaled $967, up marginally from $955 per ounce in the prior quarter. As a result of the lower production forecast for the full year, cash operating costs per ounce for 2014 are now expected to be between $925 - 1,000.

Capital expenditures for the second quarter of 2014 totaled $2.6 million of which $2.0 million was spent on resource development drilling below the Wassa Main pit. In addition to the $4.1 million spent in the first quarter, a further $11.3 million in capital expenditure is forecast at Wassa for the remainder of the year. This is a marginal reduction from the original budget.

Bogoso Operations

1 See "Non GAAP Financial Measures".

Bogoso gold production and sales in the quarter were up 4% from the prior quarter and totaled 32,275 ounces. Refractory gold produced increased to 28,620 ounces in the second quarter of 2014. This was below expectations as heavy rainfalls limited access to high grade ore in the bottom of the two operational pits despite extensive dewatering. As a result, higher grade ore was blended with ore from a low grade stockpile reducing the overall head grade. Production from higher grade material has been deferred. Encouragingly, when the bottom of the pits was mined, the mined grade was significantly higher, in line with the mine plan. At the start of the third quarter, mining is in these higher grade zones and improved production in the second half of the year is expected.

There have been intermittent power outages at Bogoso during July that have impacted mill uptime. As a result of this loss of production, combined with the underperformance in the second quarter, operations are not expected to achieve the production forecast at the beginning of the year. Production guidance for 2014 is therefore revised to 145,000 - 155,000 ounces. The total refractory gold production at Bogoso remains unchanged over the remaining life of mine. The production forecast for 2015 is therefore likely to increase.

The strip ratio in the refractory pits reduced from 7.9 in the first quarter to 6.4 in the second quarter as the push backs in these pits are now complete. This ratio would have been lower had ore mining not been impacted by rainfall. It is expected that the strip ratio will reduce further in the third quarter and thereafter as these pits reach the end of their mine life in late 2015.

Non-refractory gold produced was solely from tailings retreatment which was impacted by heavy rainfall in the period that hampered hydraulic mining.

Bogoso's mine operating expenses totaled $44.6 million for the second quarter, down from $48.8 million for the prior quarter. Expenses reduced with lower tonnes mined and processed than in the prior quarter. Total operating expenses are expected to be constant over the remainder of the year.

Cash operating cost per ounce totaled $1,415 per ounce for the second quarter of 2014, compared to $1,489 per ounce in the first quarter of 2014. These unit costs are expected to decrease over the remainder of the year and average $890 - 1,000 for the second half of 2014. Despite this, the full year cash operating costs for Bogoso are now expected to be higher than the initial forecast and the revised estimate is approximately $1,100 - 1,200 per ounce.

Capital expenditures for the second quarter of 2014 totaled $3.7 million of which $1.5 million was incurred on infrastructure maintenance at Prestea Underground and $1.7 million of capitalized betterment stripping at the Chujah pit. The remaining capital expenditure at Bogoso for 2014 is expected to be $6 million, a reduction from the further $13.5 million initially budgeted. This reduction is largely due to savings in expenditure related to the push backs at the Chujah pit, a reduction in expenditure on development projects Dumasi and Prestea South and revised refurbishment plans for Prestea Underground.

Review of Development Projects

Wassa

The Wassa drilling program completed twelve holes, totaling 6,615 meters during the period. Results returned have confirmed and extended the zones of high grade gold mineralization on several of the step out drill fences. Hole BSDD315M, on the last step out fence, intersected several wide zones of significant gold mineralization including a deeper zone which has an estimated true width of 70 meters grading 5.8 g/t Au. On section 19500 north, a directional hole, BSDD290BD1 intersected a robust mineralized zone 45.4 m estimated true width grading 8.3 g/t Au.

Additionally, infill drilling continues to confirm continuity, grade and thickness of this mineralization.

The Wassa preliminary economic assessment ("PEA") of a combined underground and open pit mining operation, is progressing well with resource models nearing completion. Upon completion of the resource block models detailed engineering and mine scheduling will commence. The PEA is scheduled to be completed the third quarter of 2014.

Prestea Underground

The feasibility study for Prestea Underground completed in 2013 demonstrates positive economics using mechanized mining methods. Given the three year development period and the associated initial capital expenditure, mechanized mining methods are not considered optimal at this time. As such, an internal concept study was completed in the period to evaluate a development plan for Prestea Underground using hand held mining methods. The associated capital expenditure is significantly lower and cash operating costs are expected to be similar to those outlined in the original feasibility study. The Company has decided to complete a PEA of this development alternative for publication in the fourth quarter of 2014.

Outlook

The Company's focus for the remainder of the year is to increase production at both mines whilst maintaining the current lower cost levels. Production and cash cost guidance for 2014 has been revised as follows:

A return on the investment in push backs at Bogoso is expected over the next two quarters and into 2015, whilst cash flow from tailings should improve. The completion of both PEA's at Wassa and Prestea are key to achieving the Company's long term goal of shifting production to non-refractory ore sources which should reduce long term cash costs. Updates on these development projects and associate financing will be communicated to shareholders over the remainder of the year.

Non-GAAP Financial Measures

In this press release, we use the terms "cash operating cost per ounce" and "adjusted net loss attributable to Golden Star shareholders". These should be considered as non-GAAP financial measures as defined in applicable Canadian and United States securities laws and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

"Cost of sales excluding depreciation and amortization" as found in the statements of operations includes all mine-site operating costs, including the costs of mining, ore processing, maintenance, work-in-process inventory changes, mine-site overhead as well as production taxes, royalties, and by-product credits, but excludes exploration costs, property holding costs, corporate office general and administrative expenses, foreign currency gains and losses, gains and losses on asset sales, interest expense, gains and losses on derivatives, gains and losses on investments and income tax expense/benefit.

"Cash operating cost per ounce" for a period is equal to "Cost of sales excluding depreciation and amortization" for the period less royalties and production taxes, minus the cash component of metals inventory net realizable value adjustments divided by the number of ounces of gold sold during the period. We use cash operating cost per ounce as a key operating indicator. We monitor this measure monthly, comparing each month's values to prior quarters' values to detect trends that may indicate increases or decreases in operating efficiencies. We provide this measure to investors to allow them to also monitor operational efficiencies of the Company's mines. We calculate this measure for both individual operating units and on a consolidated basis. Since cash operating costs do not incorporate revenues, changes in working capital and non-operating cash costs, they are not necessarily indicative of operating profit or cash flow from operations as determined under International Financial Reporting Standards ("IFRS").

In order to indicate to stakeholders the Company's earnings excluding the non-cash (gain)/loss on the fair value of debentures and non-cash impairment charges, the Company calculates "adjusted net loss attributable to Golden Star shareholders" to supplement the condensed interim consolidated financial statements.

Changes in numerous factors including, but not limited to, our share price, risk free interest rates, gold prices, mining rates, milling rates, ore grade, gold recovery, costs of labor, consumables and mine site general and administrative activities can cause these measures to increase or decrease. The Company believes that these measures are similar to the measures of other gold mining companies, but may not be comparable to similarly titled measures in every instance.

In the current market environment for gold mining equities, many investors and analysts are more focused on the ability of gold mining companies to generate free cash flow from current operations, and consequently the Company believes these measures are useful non-IFRS operating metrics ("non-GAAP measures") and supplement the IFRS disclosures made by the Company. These measures are not representative of all of Golden Star's cash expenditures as they do not include income tax payments or interest costs. There are material limitations associated with the use of such non-GAAP measures. Since these measures do not incorporate all non-cash expense and income items, changes in working capital and non-operating cash costs, they are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS.