Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Belinda Labatte - Principal

Samuel T. Coetzer - Chief Executive Officer, President and Director

Jeffrey A. Swinoga - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Rahul Paul - Canaccord Genuity, Research Division

Cosmos Chiu - CIBC World Markets Inc., Research Division

Andrew Breichmanas - BMO Capital Markets Canada

Craig Johnston

Doug Dyer

Robert Reynolds

Golden Star Resources Ltd (GSS) Operations Update Conference June 18, 2013 10:00 AM ET

Operator

Greetings, and welcome to the Golden Star Operations Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Please note this call does contain forward-looking information. Please refer to the company's statement regarding forward-looking information in the company's Form 10-K filed March 4, 2013.

The call will begin now. It's now my pleasure to introduce Belinda Labatte, Investor Relations representative for Golden Star Resources. Thank you, Ms. Labatte. You may begin.

Belinda Labatte

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Golden Star Resources operational review updates. The press release was filed yesterday and is available on the company's website at www.gsr.com. Joining me on the call today is Sam Coetzer, President and Chief Executive Officer; and Jeff Swinoga, Executive Vice President and Chief Financial Officer. Sam will provide an update on operations.

I draw your attention to our forward-looking statement and legal disclaimer that was on our press release filed yesterday. And now hand the call over to Sam.

Samuel T. Coetzer

Thank you, Belinda. Good morning, everyone. Thanks for joining us on today's call. We are hosting the call this morning in conjunction with our press release filed yesterday evening. As I indicated to you earlier, GSR was committed to do 2 things during this quarter: one, to update you on the Prestea Underground feasibility study; and number two, to update you on our review process, including cost reduction measures, mine plan re-optimization and capital reallocation. I'm happy to state that my team, in this difficult gold price environment, has been able to complete all the work we set out to do. It was a phenomenal area [ph] for this especially recognizing that in the difficult market conditions, our production continued strongly.

Our investment in the last 18 months to enhance our planning function is paying off, and I am pleased with the progress we have made to date. So my plan today is to take you through the essence of the update press release of last night, and then I will take some questions.

Over the last month and a half, we embarked on a review that comprise the following activities: a review of the viability of Bogoso under the current market conditions; discussions with our suppliers, government and communities to address potential support from external groups; working with our employees to establish a set of principles during this time; and lastly, reviewing mine plans using various scenarios of gold prices.

Over the last several weeks, it became clear to me that Golden Star operations are resilient, and that we can manage the current market challenges as a result of what we have been implementing over the last few years. What makes our operations resilient today are the following: strong community and employee support, what had [ph] been strengthened over the last 14 months for starting up the Father Brown pit, investing in the CIL plant and having drilled below the Wassa pits. At Bogoso, we have upgraded the BIOX section of the plant and availability is an efficient -- efficiencies are markedly better. Clarity of mine plans now allow us to understand the risk associated by reducing development capital and adjusting our future production and development profile, introduction of a committed senior management team and a strong board support.

With that said, I want to highlight to you that our production profile into midyear is strong. I also want to highlight that our cash balance as of June 17, yesterday, was just over $51 million. We have closed the Denver office at the end of May, and we now have a full functioning executive team in Toronto. That transition went smoothly.

Regarding the essence of the press release, GSR focused on cost reductions, mine plan re-optimization and capital reallocation. Each of these is risk rated and has a full risk assessment associated with our decisions.

Our Bogoso -- our Chujah and Bogoso North pits are currently both in pushback, which on average, has a high strip ratio of 11:1, and is anticipated with approximately 3 quarters to reduce to 3:1 strip ratio. This is expected to significantly reduce Bogoso's cost structure. This, to me, is an important investment. We've adjusted the way we plan to do the pushback at $1,600 an ounce versus a $1,400-an-ounce scenario.

First, I want to highlight to everyone as most profound impact of what we saw in our review. The Bogoso refractory business will alter these pushbacks to a period of nearly 2 years of a cost balance reduction of nearly 30% from the expected operating -- from the expected operating expense peak anticipated to occur in December 2013. Slowing down our development projects, i.e., Dumasi, Mampon and Prestea South is anticipated to allow the company to self-fund these projects. Should the gold price react favorably, we could then decide on increasing the pace of development. We are currently reviewing the impact this might have in future years, which I'm confident can be dealt with. This pits, therefore, remain in our current profile.

Talking about the cost cutting. As stated earlier, our teams reacted swiftly to reduce cost. The $45 million of operating cost reductions referred to in our press release was obtained through the following: reducing contractors with an owner-operator truck fleet; reducing labor over time, labor rationalization, strip reductions, et cetera, enable to do supplier -- negotiated supplier discounts, reducing non-refractory plant maintenance cost and power cost, efficiency gains, including, in the last 6 weeks, repurchase 2 new excavators with our plan to reduce both maintenance and fuel cost. Equipment reallocation, utilizing all the equipment and less reliant on contractors. The new mine plant for Bogoso is less complex and easier to achieve. The total of the above amount was a total of about $20 million.

The cost reduction review -- our cost reduction review is now commenced at our Wassa Mine as well. GSR is also deeply [ph] the appropriate to reduce our drilling below the Wassa pit until we've had the chance to review the additional 84,000 meters of drilling since September 2012. This reduction should not have an impact on the outside of Wassa Mine in the short-term. At Wassa Mine, we continue to invest in a new tailings dam and a pushback on the Father Brown pit.

At Bogoso, we also completed a phase of drilling on the Mampon pit, and I'm encouraged in what we've seen in that pit. I expect Golden Star will provide an update in the third quarter of this year after the results have been subject to quality assurance and quality control procedures.

Lastly, I want to briefly discuss the results of the pit re-optimization. Mine sequencing and economic models have been updated. Pit re-optimization was completed at Wassa, using a pit shell gold price of $1,100 per ounce, and at Dumasi and at Mampon $1,200 per ounce pit shell gold price, which should ensure continued viability in the event that gold prices decline below the current levels. The gold price increases, pushback designs are in place to take advantage of those increases. These pit re-optimizations are expected to provide for a lowest strip ratio and are designed to deliver higher throughput and higher grade to the most, consequently, reducing operating cost going forward.

I want to highlight that our mine plan re-optimization allows us to continue Bogoso by investing in these 2 pushbacks. However, to provide extra support and to ensure that we have sufficient cash balance available, we will consider financing alternatives. Although we estimate that Golden Star has sufficient cash in hand for the remainder of 2013, it is prudent for us to make such an arrangement.

Looking at our capital budget. As mentioned in the press release, we have made reductions in all areas of the Bogoso refractory and non-refractory operations. After the money spent in the last two quarters, the plants are operating well and are on budget. Based on the above and after risk rating our decisions, we decided the best way forward was to reduce our development capital spending. The main reduction in spent is now a timing issue. Reductions we are putting forward in sustaining and development spending are significant and are possible by changing our timing expectations for certain pits. This speaks strongly to our ability to optimize our portfolio of assets based on market conditions, meaning we can advance our pits or defer spending as needed.

The company will update the market in the third quarter on the availability of development capital and the timing of pit development. Golden Star showing the results of our massive effort to plan for contingencies and create new development opportunities that will reduce our total operating cost over time and shift our production to higher margin ounces.

I now pass this over to the operator for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is coming from Rahul Paul from Canaccord Genuity.

Rahul Paul - Canaccord Genuity, Research Division

I'm assuming this plan is temporary as opposed to life of mine, correct me if I'm wrong. Just curious, the budgeting purposes, what gold price do you assume for the remainder of 2013, 2014 and 2015?

Samuel T. Coetzer

I can talk to 2013, and that's what we have reviewed at this plan. I will -- by at the end of the year, we will give guidance for the remainder. But currently, all the plants have been done at a sensitivity analysis around the $1,400 at balance and we'll have sensitivity on those plans depending on the flexibility we require, Rahul, so you can use $1,400.

Rahul Paul - Canaccord Genuity, Research Division

$1,400? But then, I mean, are you optimistic that the price of gold should pick up in 2014 and 2015?

Samuel T. Coetzer

I -- at this stage, I don't think any of us can call [ph] what the gold prices are going to go, Rahul. But when I -- we got to remain unless and keep the upside for this business should that occur. At this point in time, we've rightsized the company, we've looked at our risk, we've risk rated all our decisions and what we see in the market currently, and we have the ability to adjust should there be a favorable reaction coming forward.

Rahul Paul - Canaccord Genuity, Research Division

Okay. And then just following up. You mentioned that your device mine plant at Wassa is based on $1,100 pit shell Dumasi and Mampon, now you use $1,200 pit shell. What would the impact beyond life of mine reserves if you were to use these gold prices?

Samuel T. Coetzer

Yes, it was a good question, Rahul, because that will be our biggest challenge and we have lots of discussions on that. Let me start this way. Mampon, Father Brown, Prestea Underground is unaffected by this gold price purely because of the grade, as you can understand. So the impact of the lower gold price on those 3 had very little impact, it's negligible. In terms of Dumasi and Prestea South, those are 2.5 years out, and that cash flow we see in our ability with the risk associated with 2 years from today, we did that analysis at $1,200. The Wassa pit, we've done that at $1,100, and there is a reduction in mine life on the Wassa pit because of that. However, we have 84,000 meters that has been drilled in that pit, which we have not updated in our results at this point in time. So the biggest impact on the short-term, until we do that, would be in the Wassa, and we do that 84,000. So at this stage, I don't want to talk about the life of mine, but these pits are still in our profile going forward.

Rahul Paul - Canaccord Genuity, Research Division

Okay. And then how do your cut-off grades change at any of your operations?

Samuel T. Coetzer

The cut-off grade would have changed because of the lower gold price. We have not fully adjusted Wassa. We've only started with Wassa's cost structure review this week. The team is going through the similar risk assessment. And once we have that new cut-off grade in terms of what Wassa can achieve, we will relook at those plans after we put the 84,000 meters in that we've drilled and redo that life of mine plan.

Rahul Paul - Canaccord Genuity, Research Division

Okay. So the reason I'm asking this is, so would it be reasonable for me to assume that most of this is a temporary measure to make sure you stay profitable or cash flow neutral in 2013? But then if the low gold prices were to persist going forward, then you would have to make further adjustments into next year?

Samuel T. Coetzer

Rahul, what I've been trying to do over the last 18 months is not run it on principles of creating a company that reacts, that we utilized the information available to us and we build our knowledge around what is required in the business today. We also look back, Rahul. I think it's important that I maybe say this to everybody. When you make decisions of where we are at this point in time, you determine what is the resilience of the company: what have you done in the last 18 months, where are you today and where is the company going forward? And when I look back at what we've done in the last 18 months to make the decisions on CapEx spend or in terms of pit designs, et cetera, we are very clear that we have strengthened Wassa. There is no doubt that Wassa is strengthened. Over the last 18 months, we invested in Prestea Underground. We spent money on that. We've upgraded the winders, we have new rocks [ph] in place, we've upgraded the pumping system, we open the 17 level, we've completed a feasibility study, so we know what we have now at above capital at PUG and the clarity of that. We also looked back at what we've been able to do with our planning in the past 18 months. We've been able to pay back $48 million in debt based on a plan that we have in the past. We've invested in the BIOX plant over the last 18 months, and that plant is running much better. We install also during the time, which is still another lever [ph], a tailings reclaim facility, to mine more tailings. We have changed the proportion of our truck fleet with both new excavators to increase efficiencies going forward. We've also, above all -- we've remained unhedged. Above all, we've not taken an additional debt. So what I'm trying to say, Rahul, when you look -- this is not reactor. You look at what have been done at a point in time of 18 months what should this company do looking forward. So it's not only a reaction to a point in time, but also what have been able to accomplish to make the company straighter [ph]. Sorry for the long answer, Rahul, but I think I have to put that in perspective.

Operator

Our next question is coming from Cosmos Chiu from CIBC.

Cosmos Chiu - CIBC World Markets Inc., Research Division

First off, I guess, on CapEx, Sam. In terms of those 2 pushbacks, what's the CapEx behind the stripping and things like that? And does that include in the $34 million?

Samuel T. Coetzer

So the stripping out, the bitumen stripping for the 6 month -- the first 6 months of the year, which we's have already done, so we started that as being about $10 million, right, in bitumen stripping. $9 million of that, Chujah. I've seen a very similar number to year end [ph] until we get to the lowest strip ratio moving forward. So that -- half of that is now done and we still need a half going forward until Bogoso gets to a better place. That is in the numbers that we have shown. Jeff?

Jeffrey A. Swinoga

Yes. Cosmos, just on the -- we don't show bitumen stripping as a capital. Under U.S. GAAP, we reflect it as operating cost, as mine operating cost.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. I guess, so that's the reason why you're saying cash operating cost will likely be higher in the second half because you're reflecting the entire 11:1 strip ratio as an operating cost?

Jeffrey A. Swinoga

That's exactly right.

Samuel T. Coetzer

That's correct, Rahul, so good question -- Cosmos, sorry.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. And then in terms of -- with the highest strip in the second half, Sam, does that mean -- does that going to impact your throughput at Bogoso in any way in the second half of 2013, or maybe even into Q1 2014 at the mill, at the sulfide mill?

Samuel T. Coetzer

Yes, and those -- and the numbers that we quote in terms of the ounce production, yes. November and December would be the most challenging 2 months for us to supply the plant. And in all the answers that we have shown, that is reflective. So we got 2 really [ph] months and then it starts picking up. But it's a right decision, Cosmos, to push through. We're so close to get to the good production. If you can recall the fourth quarter last year, when Bogoso got really good results in the lower cost structure, that's when we had the Chujah at the bottom with the low strip now, which is going to have a bigger pit at that point in time going forward. So to say November, December, we will be challenged with throughputs, lower than what we -- you've average [ph] seen up to, to date.

Cosmos Chiu - CIBC World Markets Inc., Research Division

And Sam, maybe if you can quickly walk me through the transition of the different pits at Bogoso. You talked about the 2 years at Chujah and Bogoso North. In 2 years time, was that the plant you transition over to Dumasi and Mampon? And the fact that you're delaying some of the spending at some of these other pits, how does that impact it? How long does it take you to like get these other pits ready so that you can have a transition?

Samuel T. Coetzer

So that's a good question. That transition is to be in [indiscernible] the life of mine plan, but doing a -- about 2 years from today, we will be slowly building out the Dumasi pit, and in the Mampon, we're coming at very similar time. So slowing down, we've done a lot of work. As you can see with the spending that we've done at Dumasi in the first 6 months, we're entering normally into a period of high rainfall, which is now for the next quarter and 1.5 quarter, and our focus was to do mainly groundwork from the Dumasi relocation. And so we're slowing that down only because also the efficiency to working with weather. But we believe that once we know we're getting to cash flow positive from Chujah and Bogo that we can accelerate that going forward. I'm not too concerned at this point in time, but we are doing a full review on how that will dovetail, and we might have a quarter or 1.5 quarter or whatever of a low at that point in time. That clarity we're focusing on now.

Jeffrey A. Swinoga

Cosmos, it's Jeff here. I just wanted to clarify that, make sure that everyone understands that bitumen stripping that we're talking about, we exclude that from our cash operating cost per ounce to make it comparable to other mining companies who, under IFRS, capitalize it. So for U.S. GAAP purposes, it included mine operating expenses on our income statement, but we don't include it in the cash cost per ounce number, just to make sure.

Operator

Our next question is coming from Andrew Breichmanas from BMO Capital Markets.

Andrew Breichmanas - BMO Capital Markets Canada

So just specifically on Chujah and Bogoso North where, I guess, sort of near-term productions coming from, can you just remind me what the reserves in those 2 pits are?

Samuel T. Coetzer

Okay, Andrew, ask me another question in the meantime, while I'm just looking [indiscernible] any numbers. So go ahead.

Andrew Breichmanas - BMO Capital Markets Canada

The other question was actually on a separate issue, on the Prestea Underground feasibility that came out last week. I'm just wondering if maybe we could get your thoughts on what you saw in that study? And given the new plan, how you plan on moving that project forward.

Samuel T. Coetzer

Yes. Firstly, as you know, the feasibility study showed very similar to what we expected in the PEA, and the capital that we allocated in this feasibility study allows for more to be mined through that infrastructure than just the way it swift [ph] all the current reserves. As you know, we have a down plans on that, Andrew. And also what we can do through that infrastructure once it is in place that we could mine other areas through that same infrastructure. So basically, it was as we expected from the PEA. We've verified that the grade is there through some of our metallurgical drilling, we've verified the metallurgical work on that and also we've verified basically that we have the ability to go in and start some work early should we feel that we are ready to do that. Andrew, can I come back? I don't know what reserves in Bogo. I don't have -- I have just the total. I don't have the specs with me. I can give you that information on Bogo reserves and Chujah reserves.

Operator

Our next question is coming from Craig Johnston from Scotiabank.

Craig Johnston

Kind of following up on Rahul's questions earlier in terms of the pit re-optimization. Will you be putting out kind of revised 43-101s for Bogoso and Wassa?

Samuel T. Coetzer

We've just done the Wassa, and once we have the review, we will update the reserves. I mean, if we were to do the 84,000 meters, we will look at and we have the new resource. But we haven't planned to do that right now in new NI 43 for those 2. I haven't planned on doing it right now, but we'll keep it down [ph] for [ph] some discussion.

Craig Johnston

Okay. And then, I guess, with Wassa, is it fair to assume that the sensitivities in the December 2012 technical report are a good assumption to use? Or has? Or has unit cost and everything changed so much that represent...

Samuel T. Coetzer

We -- as you -- the unit cost, I expect, to be adjusted. But I think most of you on the call understand when you are in gold market and the gold price uplift market, you have -- input costs keep on increasing, supply has increased cost and new contracts, per se [ph]. So when the inverse occur, and this is just my 25 years of experience, the first thing we go to is you go to your suppliers, number one, and that's where I directed my team. Nobody wants to see a mine really go under. And so what we are doing at Wassa, we haven't gone through that process, we've just started this week, and we're going to go through the exactly same process we did at Bogoso and looking at the reduction of cost at that mine site as well, which will then allow me to do further sensitivities on the cost going forward.

Craig Johnston

Okay, that's helpful. And now, I guess, kind of going to go back to Prestea Underground. Just wondering if you can give us a sense of what the plan going forward if there, i.e., kind of what the development capital budget is for the remainder of 2013 and then kind of looking out to '14?

Samuel T. Coetzer

Yes, so maybe just 2013. At this stage, you would recognize, until we have the feasibility study, until we have that in our reserves, that was an OpEx cost to Bogoso, and Bogoso had to carry all their costs. We're now in the position where we can now determine what is the -- have to expand that into CapEx going forward. So although we're selling at the point in time looking at these good assets for the future, we're determining the base approach in terms of how it would carry its CapEx structure going forward and how do we unlock that potential without burdening Bogoso further and make it a structure standing by itself as a mine by itself. And we probably will look at -- there's been some interest since we put that in, in terms of project financing. We haven't made a decision on that. However, there's a lot of interest in that mine currently as you would guess, probably because of all the work that we've done and the money that we spent on it to upgrade the mine. And so at this stage, it will start giving it some CapEx structure sorting [ph] away from Bogoso looking forward.

Craig Johnston

Okay. And is there -- so would there be any development CapEx related to Prestea Underground in the $34 million development capital for 2013? Or is that separate?

Samuel T. Coetzer

Why don't I give Jeff maybe to take you through how we've looked at capital by sustaining and development, and maybe that can answer some. So Jeff, why don't you just give an update?

Jeffrey A. Swinoga

Sure. In the $34 million of development capital, of course, we used to have $81 million as our previous estimate. The reductions have primarily come from a little bit or about $2 million from Dumasi, the resettlement there. Mampon has been largely a deferred and also reduced. Prestea Underground, as we mentioned, we are looking at that closely. We're going to be putting minimal capital into that until we have a financing, appropriate financing that would match the feasibility profile that we published. So as Sam mentioned, a number of in-store parties have approached us, and we're looking at them very closely. We have put over $70 million into Prestea Underground since we have purchased that. So it's a very good candidate for a project financing. Other development capital we [ph] expect to reductions from Wassa, we did decrease a bit from the tailings facility and also from Wassa drilling and a little bit of Father Brown resettlement cost from there have been somewhat deferred till 2014. So that's the summary of the breakdown, yes.

Craig Johnston

Okay, great. And can I just ask one more question, and then I'll free up the line. Just wondering, you mentioned at the beginning of the call that with the re-optimized pits that throughput was going to increase. Is that a case kind of both Bogoso and Wassa? Or just wondering if maybe give us a sense of kind of what the mining rates and processing rates are going to be at Wassa going forward at the $1,100-per-ounce pit?

Samuel T. Coetzer

So as [indiscernible] said, everything is an evolution. And only last week that we run Wassa and did a test to run it on the operational [ph] component. If you remember, now take Wassa and take Bogoso and then the oxide plant, if you -- Craig, if you don't mind. We have to understand that going into the deeper and the bigger pit what the Wassa plant -- the Wassa plant can do with total pressure [ph]. If you recall 18 months back, we had difficulty putting all through that CIL section because of that [ph] discussed with the issues. We then invested in the CIL and we just completed the Wassa CIL. So last week, we did run that new -- that full CIL only on hard pressure [ph], which has been very positive the results, indicating to me that if we have the ability to improve our throughput, then we can debottleneck maybe 2 or 3 areas and look for throughput increases. I don't have that number right now. We still have installed capacity in the total company of about 7.5 million tons, where -- which about 2.7 million to 3 million sits at Wassa. Obviously, the big challenge is what is the hardness of the rock. We now have a good impression of that and we know that we can start mining harder and faster in our Wassa pits, and complement that with the Father Brown. For the Bogoso plant, since we've done the refractory plant, since we have done the upgrades in the BIOX section, which was a bottleneck in the past, we've seen some improvement, efficiency improvements in that plant, and those mainly are function of efficiencies and availability of the plant, which has dramatically improved. And that plant is rated somewhere between 2.7 million and 3 million. So it's also ensuring that we get to the right pit configurations that we can pull [ph] that and increase the throughput to do the nameplate without spending too much money on increasing that. Lastly, the oxide plant. We spent a little bit of money on that. We still have efficiency improvements to view in that plant. But at this point in time, that is geared for 1.5 million, and we've been doing 1.2 million in the past only because we haven't had the right supply. Our focus, obviously, once PUG comes in, Mampon comes in and PUG, that should fall that plant and should give an increase in terms of throughput, and which is the payment, whilst [ph] the payment on the pits we have available. So my focus to the team was always to get our pits into such a shape because this company has one massive asset that many others outsize there now [ph], it's got 3 plants and it's paid [ph] full, and we can switch it on and switch it off. Our focus is to get these -- the amount of pits that we have available, to get it to run to the maximum of these plants that we have and get to the higher throughput, which we haven't been able to achieve in the last 18 months but we're working hard to get there. Does that answer your question?

Craig Johnston

Yes, yes, that was great.

Operator

Our next question is coming from the Doug Dyer from Heartland Funds.

Doug Dyer

Looking at the reserves here, we briefly discussed the prices that were used for the calculations in the past. If you were to use a new number for reserves going forward, what do you think that number would be?

Samuel T. Coetzer

You mean a gold price number?

Doug Dyer

Yes.

Samuel T. Coetzer

We stay with the numbers that I've pointed in those life of mine plan. So Wassa is -- when you do -- when we did Wassa at $1,100, I must just tell you, when the pit design comes out at the end when you do that mine design, it normally comes around $1,200, the pit, it's only because of how the shapes dictate. So the way you put the shell, once you put the bench as you see a $1,200 shell at the end of the day. So we will remain until I -- I will not react, I have enough pipeline and enough runway to work with this -- to rebuild the company around these pit shells until we are comfortable that we've had sufficient cash flow to fund some of our projects before we will adjust that going forward.

Doug Dyer

Okay. Taking a look at future funding, I mean, it looks like we'll need some more funding here and we'll have to think about that at the end of the year. What do you think is the idea of type of financing should carry us through into the next year?

Samuel T. Coetzer

We've always had the -- my team and I and the board's always had -- we want to do 2 things: one, remain unhedged; and number 2, we don't want to get -- we want to reduce debt. We don't want increase debt. What this review -- and actually, this review was very good for my team and myself. But what it indicated to us is that, first, we still have more flexibility in our plan, but it will be prudent for us to have a cash balance somewhere between $30 million and $50 million until April next year to make sure that anything unforeseen happen that's critical for me, it's very, very critical to get Chujah and Bogo into the shape they need to be. That will be a massive upside for this company. And for that, we're going to spend a total of about $20 million in bitumen stripping, but then those 2 pits will be in a good place. So to answer, it's just roughly somewhere between $30 million and $50 million is what I would like to see it cash balance, looking at some kind of arrangement that will tie us up until April next year. That is excluding, obviously, the PUG, because we're looking at restructuring PUG in terms of a legal entity and everything that we have, to take it away from Bogoso. It's clouding Bogoso's result at this point in time.

Doug Dyer

When you've made reference to the likability of Prestea Underground by other parties, are you referring to people that want to help with financing? Or are you referring to people that have an outright interest in the purchase of the property or a JV?

Samuel T. Coetzer

The first. It's up to, obviously, royalty companies out there and there's some other that like project financing as -- I don't want to mention any names on here, but you appear [ph] that, that obviously is of interest to people. I haven't opened myself to other people joining me on that great asset yet, because I do believe we have the flexibility to deal with it. But that mine has upside that we're still trying to understand and work through.

Doug Dyer

And how much production would you have to give up to get to an ideal funding level? 20%? 25%?

Jeffrey A. Swinoga

Yes.

Samuel T. Coetzer

Jeff?

Jeffrey A. Swinoga

Yes, with respect to Prestea Underground, is that the question?

Doug Dyer

Yes.

Jeffrey A. Swinoga

Well, if we're looking at a project financing, I've been associated with 3 of them in the past, and I know they take a while to get through briefing out a key group of interested parties that you can certainly do it within 1 year, 1.5 years. But in terms of the -- giving up production, I think that we're more associated with another type of arrangement, project financing with the cost profile that Prestea Underground has, with the exploration upside, with the capital of $150 million 3-year payback, it's depending on where we procure most of the supplies, the equipment, the engineering, the contractors. There are many regional institutions that would very much like to participate in financing for Prestea Underground. So there would be -- I don't think there'd be any production that gives with that type of arrangement.

Operator

Our next question is coming from Robert Reynolds from Crédit Suisse.

Robert Reynolds

My question relates to Prestea Underground and on the taxes or forecast taxes. Will Goldstar be able to use non-capital losses from Bogoso to shield taxable income up [ph] the underground?

Jeffrey A. Swinoga

It's Jeff here. Yes, the tax regime in Ghana, it's gone through some modifications or some revisions in 2012. Of course, it increased the income tax rates. [indiscernible] discussed the ring fencing, and it's something that -- if you look at the losses that are available to Prestea Underground, which is actually a part of the legal entity at Bogoso. They can enjoy Prestea Underground can [ph] shared some of the losses that Bogoso has. There's a certain dates that the ring fencing was enacted and there are -- the money we spent previous to that is available to Prestea Underground and to Bogoso, and they are co-mingled. However, when we look at the tax flows going forward, we're fairly confident that we're not going to be paying any tax for Prestea Underground. Having said that, the explorational side is tremendous, as Sam mentioned, and we would love the use of our cash losses as soon as possible and become taxable. So we're very looking forward to that day. So -- but we are looking at the tax efficient structures within Bogoso and Prestea Underground, yes.

Robert Reynolds

Okay. And just a quick follow-up question regarding the pit re-optimization. I just want to clarify, are there any plans to issue a revised reserve resource statement prior to, I guess, the year end 2013 update?

Samuel T. Coetzer

No, what we're planning to do is to update on Wassa. Because we've got that 84,000 meters that was drilled since 2012. And so in August, in the third quarter, we plan to update the new resource and then do the new pits. After that, we plan to update the Wassa. But the rates, we'll be all waiting for at end of the year.

Operator

Our next question is coming from the Rahul Paul from Canaccord Genuity.

Rahul Paul - Canaccord Genuity, Research Division

Sam, just a follow-up. Given what's happening in the sector, you mentioned that it is likely that cost may come down. And you also spoke about negotiating with suppliers and contractors and that sort of thing. Did you take some of that into account while coming up with your plan? Or with any reduction in costs just be a bonus?

Samuel T. Coetzer

Rahul, welcome back. Firstly, yes. When I guided my team in terms of what needed to be done, it was realistic [ph]. That was one of the areas that we immediately had a team working with. So -- but it isn't enacted for Wassa yet. But for Bogoso, we've had those discussions, so supplier discounts are in place. And now we still have more mainly on contractors and other areas that we believe we can open our discussion. So this industry is all linked, and that linking is suppliers and contractors and all alike. And everybody participates in good times and everybody need to find efficiency gains in bad times. So that was done for Bogoso but not yet at our Wassa Mine, and we're going to do the same.

Operator

We have reached the end of our allotted time for our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

Samuel T. Coetzer

Thank you. Thank you, everybody, for listening. And as I what indicated earlier to you, the last 18 months and we continue has made this company more resilient. We are continuing to be focused on getting the foundation of this company in good step. It has enough levers for me and my team to work through and continue down the path of creating a lower cost company in the future. It's been a trying times, it's been a bit difficult time, but I'm surrounded with people with lots of experience, has been here before and can revolve out of a very difficult time and keep the upside open for our shareholders. Thanks.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Golden Star Resources' CEO Hosts Operations Update Conference (Transcript)
This Transcript
All Transcripts