Golden Star Resources Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug.12.13 | About: Golden Star (GSS)

Golden Star Resources (NYSEMKT:GSS)

Q2 2013 Earnings Call

August 12, 2013 10:00 am ET

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

Daniel Monney Akwafo Owiredu - Executive Vice President of Operations

Analysts

Rahul Paul - Canaccord Genuity, Research Division

Andrew Breichmanas - BMO Capital Markets Canada

Doug Dyer

Paolo Lostritto - National Bank Financial, Inc., Research Division

Operator

Greetings, and welcome to the Golden Star Q2 2013 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded.

Please note, this call contains forward-looking information. Please refer to the company's statements regarding forward-looking information in the company's Form 10-K, filed March 4, 2013.

The call will begin now. It is 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. And good morning, everyone, and thank you for joining us to discuss Golden Star Resources' second quarter 2013 financial results and operational update. Our financial statements were filed this morning and these are available on the company's website at www.gsr.com.

Joining me on the call today is Sam Coetzer, President and Chief Executive Officer; Jeff Swinoga, Executive Vice President and Chief Financial Officer; Daniel Owiredu, Executive Vice President, Operations; and Bruce Higson-Smith, Senior Vice President, Corporate Strategy.

Sam, Jeff and Daniel will discuss the financial results for the second quarter 2013 and will provide an update on operations. For those of you using the webcast presentation, I draw your attention to our forward-looking statement and legal disclaimer on our webcast presentation. Sam?

Samuel T. Coetzer

Good morning, all, and thank you for joining us today. Before we begin, I want to take this opportunity to thank the entire Golden Star team for the tremendous effort they've made over the past months to ensure that Golden Star can move it up forward in this difficult market conditions. The company is endowed with people that are resilient, dedicated and committed to delivering on our goals.

Today, I'm pleased to discuss our financial highlights for the second quarter, along with an update on operation, exploration and planning for 2013. I will then hand the call over to our Executive Vice President and CFO, Jeff, for details on changes in our financial conditions; and then to Dan, our Executive Vice President of Operations, to discuss our operations in further detail.

Let's start by reviewing the progress we've made to -- made this quarter. First, we remained on target to achieve production guidance of 290,000 to 310,000 ounces of gold production in 2013. Year-to-date, as of the end of the second quarter, we have produced 200,166 ounces, with second quarter production of 85,000 ounces sold. Even with the closure of the Pampe facility, production is up as compared to the 81,000 ounces of gold sold during the first quarter of 2013.

With the decline in gold prices, revenues have decreased by approximately 11% to $121 million for the second quarter of 2013, down from the $136 million generated during the second quarter of 2012.

Net cash flow provided by operating cash flows after working capital changes increased to $29.5 million from $24.1 million year-over-year.

Golden Star's net loss attributable to shareholders during this quarter was $129 million or $0.50 per share. The major factor contributing to the loss was a noncash impairment charges net of tax totaling $169.6 million incurred in the write-down of Bogoso and Wassa's carrying value.

We recently announced the $50 million medium-term loan facility which provides us with a much stronger balance sheet positioned to fund our Wassa operations and the drilling program. This was an important milestone for us, and we are pleased to be working with Ecobank, a world-known applicant financial institution with a long history in Ghana.

In July, we commenced reprocessing of the old tailings facility, the TSF1, at Bogoso to the non-refractory plant at an initial rate of 4,000 tonnes per day. Similar to many of our peers in the industry, this quarter, we provided our all-in sustaining costs using evolving guidelines from the World Gold Council. In the future, we do expect this to become an industry standard and have started the transition to providing this comprehensive measure of the full cost of gold production. This quarter, we have provided you with consolidated all-in sustaining costs and all-in costs, along with the breakdown of how this has been calculated. As you can see from the slide on this webcast presentation, the calculations for all-in sustaining costs include cash operating costs, plus sustaining capital expenditures, corporate, general and admin costs, mine site exploratory drilling and greenfield evaluation costs and environmental rehabilitation cost. The new all-in costs immediately start with all-in sustaining costs. It may have additional costs including non-sustaining capital expenditures, capital expenditures at new projects and capital expenditures at existing operations that increase the productive capacity of the mine, extend the mine life beyond the existing pits. Another non-sustaining cost primarily exploration and evaluation cost. Community relations stuff and general administrative costs that are not associated with current operations.

This quarter's metrics indicate that we remain at the high end regarding all-in costs of production, which includes our mine investment in the pushbacks and betterment stripping taking place in Bogoso where operations are not yet normalized. Our decision to continue the 2 pushbacks are based on good economic returns expected on the Bogoso North and the Chujah pit in the current gold price environment.

Testament to this were the good results we saw from these new pits in 2012. In April makeshift, the strip ratio is expected to be reduced to between 2 and 4, which is well below the pit average of 7, and even further below the current 12. This short-term and significant investment is expected to then generate 18 months of higher profitability and expanded margins.

Wassa is delivering significant value for us in the near future, and as drilling continues to enhance the understanding of the potential around and below existing Wassa mine pits. We do expect to show a trend in reduction of all-in costs over time that reflect our strategy of optimizing our production and processing capacity, combined with disciplined capital investment and soft market conditions.

Both companies are now finding themselves in a very volatile and fluid environment with the commodity market that can cycle north or south in a matter of days. We are keenly aware of the situation, and during times like this, we need to take action to safeguard our financial position to sustain our success in this current market. As you know from our last call, we have implemented $45 million of operating cost reduction, and this initiative to minimize cost will continue.

At Golden Star, we have just completed an internal planning to call Golden Star trigger point report and are now at a stage where we can proactively address our options. Basis of this report is detailed life-of-mine planning, all the operating and development components of the company. This document guides us on cost-saving decisions, CapEx spending decisions, alternative revenue-generating options and how each processing facility can benefit from various supply sources. Both short and medium-term decisions are now taken on trigger point, emerging with a full risk assessment for each potential decision. Our side in the portion of position that it has various options to consider. As I stated before, Golden Star has 3 operating facilities and install-processing capacity of about 7 million tonnes per annum. Immediate available supply sources are the Father Brown pit, Wassa pit, Wassa heap leach stumps, the Bogoso North pit, the Chujah pit, and the Bogoso's TSF1 and the Mampon tails reprocessing operation. However, in the case of Bogoso, the Chujah and Bogoso North pits require the completion of 2 pushbacks that should significantly improve the cost structure of Bogoso. We will continue investing in these pits via cash from operations.

The trigger point report also the base use of capital for development projects in terms of future cash flow. These projects include Prestea Underground, Father Brown pushback, the Prestea at South pits, Mampon pit and the Dumasi pit. We now want to look at drilling, a potential underground mining target at Wassa. Pit drilling will include the understanding of a high-grade mineralization 300 to 400 meters below our current pit floor, which was identified during the 2012, 2013 drilling campaign.

In July this year, we started reprocessing Bogoso's TSF1 tail through the Bogoso non-refractory plant. In the 3 weeks that this project has been running, the results have been very encouraging with over 1,300 ounces of gold produced. Over the past few months, we have refocused our efforts on a well-defined starter pit at Wassa that has been verified recently by great control drilling. And on the completion of the pushbacks of Bogoso North and Chujah, this can have a large and positive impact on the business for our shareholders. We are confident that the allocation of funds now available will ensure the best outcome over the next 18 months.

At Wassa, we are very excited with the results we have seen from the Wassa drilling, and have adjusted our exploration strategy by targeting a potential underground source. The intention of this strategy is to bring the high-grade ounces into our mine plant earlier. In terms of Wassa drilling results, an update was first released on July 18, 2013, and a significant rate on rigs are similar to drilling results on Wassa over the last 18 months. By the end of the second quarter, all the contract rigs were shut down, prior to being demobilized, drilling predominantly targeted infilling gaps, as well as testing the high-grade plunge to the south. Results confirmed the mineralized zone continues to the south and remains open at depth. We are very encouraged with these results.

Now with the noncash impairment charges out of the way, we could start demonstrating the benefits of all our hard work. Thriving to foster and nurture good relationships with various stakeholders in Ghana have put us in a position to complete a successful loan arrangement with a local bank, as well as with our communities to supplement our local institutions. Our investment and partnership with Ghana over the years to increase local content is allowing Golden Star to achieve its goals and expedite its strategy.

Our action plan for the immediate future is as follows: continuation of the Wassa drilling now for an underground target, continuing to reduce the strip ratio for the Bogoso North and Chujah pits and return Bogoso to profitability. Strip ratios for these 2 pits combined are expected to reduce from 10:1 for the balance of 2013 and Q1 2014, to 5:1 in the second quarter of 2014, and then down to 2:1 for the second half of 2014 and onwards; re-mining and processing the TSF1 tailings; increasing our tailings capacity at Wassa; reviewing Father Brown pushback to obtain additional high-grade feed for the Wassa plant; and reviewing a lower CapEx start-up scenario for Prestea Underground.

I will now turn the call over to Jeff, our CFO, to discuss in more detail our financial performance and capital spending. Over to you, Jeff.

Jeffrey A. Swinoga

Thank you, Sam, and good morning to all analysts and investors on the call. I will review major items and changes to our financial condition and the changes from U.S. GAAP to IFRS accounting practices.

In regards to our operations in this quarter, on a revenue basis, Wassa's performance was stable quarter-over-quarter and is up $6.4 million or 10% to $72 million as compared to the same period last year. Results at Wassa were favorably impacted by higher grade ore from Father Brown and improvements realized at the Wassa processing plant allowing for increased level of production.

At Bogoso, as compared to last year, revenues were down 31% to $49 million. The primary reason for the reduction was the suspension of mining at the Pampe pit. As a result, the non-refractory processing plant was placed on carried maintenance. The non-refractory gold sales were down 56% from the second quarter of 2012. In addition, refractory gold production was down 12% due to slightly lower ore grade process and lower negligible recoveries.

Overall, revenues decreased to $121 million, down 11% from $136 million generated during the same quarter last year. Wassa contributed approximately 60% of total revenues during the second quarter of 2013, while Bogoso was responsible for the remaining 40%.

In line with the ounces sold during the last quarter, our mines sold 85,090 ounces during the second quarter of 2013. Despite the suspension of the Pampe pit, production in Q2 2013 was 5% higher than the 81,361 ounces sold in the first quarter of 2013. As gold prices fell, our average realized gold price decreased to $1,418 per ounce from $1,600 per ounce last year.

Consolidated cash operating cost remained stable at $1,078 per ounce, which is lower than Q1 2013's level of $1,124 per ounce, but was up slightly as compared to the second quarter last year of $971 per ounce.

Bogoso experienced an increase of 44% to $1,584 per ounce as compared to the same period last year. Costs were higher as we reflected the drawdown in inventories and due to the higher strip ratio at our pits, as Sam mentioned earlier, but mining costs are expected to decrease as Chujah and Bogoso North strip ratios decrease as well.

As we previously indicated, we expect to see a range of consolidated cash operating cost from $1,500 -- sorry, $1,050 to $1,150 per ounce for the balance of 2013. We remain committed to our long-term view of cost reduction strategies to reduce overall mine operating expenses.

At Wassa, the increase in the amount of gold produced was the primary reason for the decrease in cash cost per ounce. Cash operating cost during the second quarter of 2013 was $736 per ounce, 11% lower than 2012's second quarter amount of $831 per ounce. As mentioned during our last call, we have initiated a number of cost reduction measures at Bogoso such as deferring our capital spending, reducing the use of contractors, reducing inventory levels and staff optimization strategies. Reduction of cash operating cost is a key focus for the company. With the recent declines in gold prices resulting in a lower valuation of our noncurrent assets, the company incurred a noncash impairment charge of $170 million after-tax or $0.65 per share.

At Bogoso, with the suspended mining at Pampe, it resulted in a $14.5 million write-down, based upon the revised re-optimized life of mine plants. The discounted cash flow at Bogoso was up in its carrying value, resulting in an additional impairment charge net of tax of $36 million related to property, plant and equipment and another $49 million was related to mine property, totaling $86 million.

At Wassa, the projected and discounted cash flows from the re-optimized mine plant was lower than its book value. As such, an impairment charge, net of tax, was $81 million recorded as of June 30, 2013. Impairment charge comprised of $14.7 million related to property, plant and equipment, and approximately $70 million related to mine property.

As a result of the noncash impairment charges, GSR's net loss attributable to shareholders was $129 million or $0.50 per share, as compared with a net income of $0.5 million in the same period in 2012. After adjusting for the after-tax noncash impairment charges and the gain on the fair value of the company's convertible debentures, the company's net loss in Q2 2013 would have been approximately $19.8 million.

Looking at other variances. In conjunction with the recent relocation from the U.S. to Toronto, Canada, the company reported its financial results in accordance with IFRS for the first time in this interim financial statement with an effective transition date of January 1, 2012. There are 2 important accounting changes I'd like to draw to your attention. First, stripping costs during the production phase or betterment stripping, as we call it, U.S. GAAP requires that these costs of removing overburden to be treated as a current period operating costs and therefore, expense. IFRS provides for deferral of the proportion of stripping costs that can improve access to future ore mine and such costs are capitalized until the ore benefiting from this stripping activity is mined. As a result, upon adoption of IFRS, stripping costs that were previously expense for U.S. GAAP were reclassified as a stripping asset. So we have capitalized $18.3 million of betterment stripping in the first half of 2013.

Second, exploration and development costs relating to mineral interests are charged earnings in the year in which they are encouraged. However, when it is determined that a mining property has a reserve potential to be economic, subsequent exploration expenditures are capitalized. Under U.S. GAAP, we would have expensed these costs until a positive feasibility was published.

Now turning to our cash flows. After changing to -- after changes to working capital, our operations provided net of $29.5 million of operating cash flow during the second quarter of 2013, up from $24.1 million in the same period last year. This increase was attributable to a decrease in inventories and a slight increase in accounts payable and accrued liabilities. A net of $36 million was used in investing activities during the second quarter of 2013, including $21 million on mining properties and $8 million for the acquisition of new equipment and facilities at the mine sites.

Now I'd like to walk you through our capital spending. Major capital projects at Wassa during the first half of 2013 included: $9.9 million of development drilling, mostly at the Wassa open pit; $1.2 million in development cost for the Father Brown mine; and $2.4 million related to the Wassa plant upgrades. Major capital spending items at Bogoso during the first 6 months of 2013 included: $6.2 million relating to the Dumasi resettlement project; development expenditures at Mampon and Prestea South totaling $2.6 million; $1.4 million was needed to complete the construction of a water treatment plant; $5.2 million for mining equipment; and $18.3 million for capitalized betterment stripping at the Chujah pit, which I mentioned before.

Lastly, as for financing activities, $1.8 million was used for the -- during the second quarter to fulfill a schedule debt repayment on our equipment financing facility.

In summary, as of June 30, 2013, we hold $52.7 million in cash and cash equivalents. In addition, we also have access to an undrawn term loan for another $40 million as announced in July, and as Sam mentioned. Operations generated $29.5 million of net cash during the second quarter, and cash flow used for investing and financing activities were $36.1 million and $1.8 million, respectively, during the period.

Now I'd like to turn it over to Dan, our Executive Vice President of Operations.

Daniel Monney Akwafo Owiredu

Thank you, Jeff, and good morning to the analysts and everybody on the call. I'm pleased to discuss with you progress at Bogoso and Wassa operations and our development plan. Let me begin by restating that educating cost reductions has been a tremendous effect for us in Ghana and corporately in the last quarter. We continue to review our cost structures across all operations.

Now starting with Wassa. We are very excited to now have the medium-term loan facility in place so that we can move forward with our plans at Wassa. We plan to incorporate all drill results since August 2012 to update our Wassa pits mineral resource estimates in the third quarter of 2013, and drilling at Wassa will continue to investigate the potential for an underground operation.

At Father Brown, nobody continues to expand as we continue mining. These pushbacks are positive and generate near-term cash flow.

Turning to Bogoso. During the second quarter 2013, Pampe open-pit mining operations was stopped due to pit wall instability. The focus is now on completing the Chujah and Bogoso North pushbacks, which is expected to bring positive cash flow into the business during 2014. In terms of production at Bogoso, we expect fourth quarter production at Bogoso to be the lowest production quarter for 2013 due to the temporarily higher strip ratio. In July, we started the processing of tailings from TSF1 at Bogoso, while still early days, the results to date are encouraging with the 1,300 ounces produced to date; 800 ounces of this, during this quarter to 2013. We expect the profitability of this production to improve as we ramp up through at 4,000 tonnes per day, plus, and costs come down as a result.

At Prestea Underground, we are pleased to have completed a feasibility study, and the report can be accessed through our website in SEDAR. The feasibility study demonstrates positive economic for the extraction of the West Reef. West Reef is a high-grade mineralized zone with ore that is suitable for processing through our existing Bogoso oxide plant, thereby reducing the risk and cost associated with putting this project into production. We are also excited to have this project in the company's pipeline as it demonstrates our ability to execute on our strategy, which is to grow our non-refractory production ounces at lower operating costs. The feasibility study also allows GSR to add to its non-refractory reserve base. The EIS is being finalized, and as such, the permitting is well underway. These steps position us well to review financing alternatives for this project.

Let us now discuss the progress we are making on our important long-term projects where predevelopment work is taking place. The trigger point analysis for these projects have now been concluded, so development capture for 2014 and pit development timing are not presently scheduled.

At Mampon, work is now proceeding on pits and holes, both engineering design and, we are working to complete the EIS and the restructuring action plan.

At Dumasi, during the second quarter, a decision was made to reduce development budget to $5.7 million for the remainder of 2013.

At Prestea South, we expect to initiate development of the Prestea South deposits, including construction of a 10 kilometer hole road and the development of a series of surface pits along the Ashanti Trend structure south of the town of Prestea, as soon as permitting process is completed.

This concludes my remarks on operations. And I'll now pass the call back to Sam.

Samuel T. Coetzer

Thank you, Dan; and thank you, Jeff. Looking forward, we plan to improve operating efficiencies and reduce operating and capital costs in both operations to further the development of gold deposits located near the Bogoso processing plants, including the Prestea Underground Mine and to evaluate a potential expansion of the Wassa open-pit mine to incorporate the resources discovered below the existing Wassa pits in the past year.

I will now turn the call over to the operator for our question-and-answer session. Thank you, operator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Rahul Paul with Canaccord Genuity.

Rahul Paul - Canaccord Genuity, Research Division

With respect to the impairment charges, what gold price and discount rate did you use to test the carrying value of Bogoso and Wassa?

Samuel T. Coetzer

Yes, I think we had that in the webcast, but Jeff, maybe, you can reiterate.

Jeffrey A. Swinoga

Yes, we used the consensus of analysts to get our gold price determination and it is around, approximately around $1,400. The discount rate we used for Wassa and Bogoso was 8% and 9%.

Rahul Paul - Canaccord Genuity, Research Division

Okay. And did you assume revised reserves based on the re-optimized pits at both operations?

Jeffrey A. Swinoga

Yes, what we did was, we used the best available information we had at that time. And that included using the re-optimized pits. But of course, there's no information coming in all the time. Of course, like drilling over at Wassa that hasn't been included, and I'm not sure Sam wants to.

Samuel T. Coetzer

Note that should be read into water reserves is going to be, we took -- when the gold prices dropped, Rahul, we had different pit shelf to immediately react to the market as we sold. And those pit shelves we used for the testing. That does not include the recent drilling that we see at Wassa. We are going to have a diverse reserves going forward. And also the reduction that we now see that we can obtain from the cost structure, both at Wassa and Bogoso, that will be going into our calculations when we determine reserves going forward. Moving into the IFRS, we had to take that information that we released and say this is how we're going to react to the gold price. Basically, those are the pit shelves that we've used in the calculation. The trigger point document we have now is reviewing in more detail what we believe we can achieve through the different sources we have. And those are the cost reductions that we've seen from both sites moving forward. So we will be redoing our reserves with the latest information that we see. And also assessing what the full reserve that we see in the market and how we will adjust Wassa going forward.

Rahul Paul - Canaccord Genuity, Research Division

Okay, thanks, Sam. What is the current carrying value was carried to Bogoso and how much of that is specifically for the non-refractory operations?

Jeffrey A. Swinoga

Yes, we haven't provided a detailed listing of the assets for resulting assets for each of the operations. But that will come out in our year-end report. So we show that overall, if you want to look at our total assets though, we have -- yes, we're at $270 million. Sorry, we're at $270 million for Bogoso, and $122 million for Wassa, and then we have some corporate of $40 million, so total is $434 million.

Rahul Paul - Canaccord Genuity, Research Division

Okay. Thanks, Jeff. And then just moving on to holding cost, I guess you reported holding cost of $3.9 million in Q2. Can you tell me what goes into that number, specifically? And what should we assume going forward for holding costs?

Samuel T. Coetzer

Yes. I think it refers to Prestea Underground holding cost. And really, the cost -- because it's a non-mine, to give it a good standing -- the opportunity -- the majority of the cost is to ensure that you keep it dry and you pump it and you keep your shaft in good standing. And so your upgrade or ensuring that the shaft is in good standing, Rahul. So those 2 components are the big numbers that drive your holding costs at Prestea Underground.

Rahul Paul - Canaccord Genuity, Research Division

So would that include money spent to advance the project as well? I mean, spending on drilling, engineering, feasibility level and that sort of things?

Samuel T. Coetzer

Yes, in the first 2 quarters, that's what we did. We had some -- we have 1 hole drilling for the feasibility study, the geo-tech work, that we wanted to complete to ensure that we have the understanding of the geo-tech. We've now slowed that down. We believe we have enough information. And so it would have included also the upgrade of the upper levels in terms of the rail. It was smaller numbers, but just upgrading and keeping it a good standing.

Jeffrey A. Swinoga

And just to add Sam's comments, going forward, since we have a positive feasibility study and since we have a new accounting policy which shows economic potential at Prestea Underground, we intend to be capitalizing those costs associated with the project.

Operator

Our next question comes from Andrew Breichmanas with BMO Capital.

Andrew Breichmanas - BMO Capital Markets Canada

Just wanted to follow up on the reserves updates at Wassa. I assume that we won't see any of the impact on reserves from the re-optimizations on the pit shelves. Can that really spike -- if you can just let me know what gold price do you plan on using for that?

Samuel T. Coetzer

We are in the process of assessing that right now. As you know, when the pit shelf was done at 1,100, and looking at the numbers we are looking, we're having a serious look. We are going into the process now, Andrew. I don't have a number to give you now on what we will be assessing for the reserves, but it will be lower than what we had before the '14, '13.

Andrew Breichmanas - BMO Capital Markets Canada

Okay, but just so I'm clear, the update this quarter is just going to be a resource updates, the reserves won't be updated now?

Samuel T. Coetzer

That's correct. Reserves will be by year end.

Andrew Breichmanas - BMO Capital Markets Canada

Okay. I guess my question is, can you provide maybe a little more detail on the used proceeds for the new facility? And then if some of the opportunities you're looking at maybe advances the potential to increase that in the future?

Samuel T. Coetzer

I guess, you're referring specifically to Wassa?

Andrew Breichmanas - BMO Capital Markets Canada

Yes.

Samuel T. Coetzer

So what we're doing is, obviously, when we read that the pit at Wassa at 1,100, we obviously, as you'd know, there will be less tonnes required to go into the tailings facility. So what we're doing now is we're assessing, should we take that up, if it's more robust to take it to a higher pit shelf, and also looking what we see from the underground mine or the underground potential on the drilling we want to do below it to accelerate those high-grade ounces, below the pit. We now make taking a call on what is the right TSF or the tailings capacity to design and what is the speed that we want to look at, Andrew. We're not just looking at what we do it for 1 big tailings facility. We're looking at can we do it south? Can we reduce the risk of our capital that is going to flow out? And so our assessment in what we see where the trigger document, it will tell us how to make the decisions in terms of our options available to design the tailings then that can conform to the cash flow required to drive the project and to keep its cost structure where we want it to be.

Andrew Breichmanas - BMO Capital Markets Canada

I guess talking about the use of the funds from the $50 million loan that you signed.

Samuel T. Coetzer

All right, Andrew, I misunderstood.

Jeffrey A. Swinoga

Andrew, this facility is very beneficial to the company, and I know you got a targeted question. But the keeping here is it provides a lot of flexibility for us to look at Wassa in different ways. It's not kind of targeted to a certain mine plant or a certain opportunity. So we're going to be using it for drilling at Wassa. We're going to be looking at Father Brown and some of the capital expenditures that might be required there. Tailings, as Sam mentioned, additional equipment does require either in the mill or maybe some mobile that we don't finance through our existing equipment financing facility. So it's a tremendous facility that gives us the flexibility to look at Wassa in different ways and to optimize the way that we want to mine it.

Andrew Breichmanas - BMO Capital Markets Canada

Okay. And then last question, just can you remind me what the cost targets for the year?

Jeffrey A. Swinoga

Yes. The cash operating cost per ounce targets are $1,050 per ounce, and $1,150 per ounce, between those 2. And you see what the $1,078 per ounce we have for this quarter, we're doing fine.

Andrew Breichmanas - BMO Capital Markets Canada

Okay, so those haven't changed.

Operator

Our next question will come from Doug Dyer with Heartland Advisors.

Doug Dyer

Yes, based on current spot, and looking into next year, how far do you think your current cash level will take you and how much do you anticipate dipping into the line of credit?

Samuel T. Coetzer

For the line of credit, it's really focused on -- it's a timing issue for taking that facility in terms of the cash flow and the opportunities that we see at Wassa. So we put that facility in place as we evaluate our analysis and what the gold price indicate, and we need to do an investment on a pushback at Father Brown. We will do until it's allocated really for the Wassa opportunity, ensuring that we drive that going forward.

Jeffrey A. Swinoga

Yes, and just to add Sam's comments. I think what's going to be a key driver on the use of cash flow generation and use of proceeds for the facility as well as internal cash flow being generated in our cash balance, is that this trigger point analysis that's very dynamic allows the company to maybe change a little bit faster, be a little more dynamic than some of the major companies and look at the opportunities that we can't -- a little bit expeditious in nature. So this is -- we haven't given any guidance on cash flow. But what we're doing is we create lot of flexibility. And as Sam mentioned, with the strip ratio coming down at Bogoso, it's going to be a much more capacity, much more margin expansion at Bogoso and much more operating cash flow that we can use for CapEx, as well as for further expansion possibilities.

Operator

[Operator Instructions] Our next question comes from Paolo Lostritto with National Bank.

Paolo Lostritto - National Bank Financial, Inc., Research Division

Since we're talking about the capitalized stripping done at Bogoso and potentially at Father Brown, can you give us a sense of what we should be looking at in terms of quarterly burn between now and I guess, Q2 2014 over at Bogoso. And then what should we be looking at for Father Brown in terms of potential pushback there?

Samuel T. Coetzer

As you said, Father Brown is the potential we're looking at a deeper zone that we've now seen and that have the cost. It's in the region of that $19 million to do that pushback, $19 million, and then we did a benefit by extending the Father Brown. So I think that's about in the range of about $19 million. But both Wassa operations are carrying that very easily in terms of its cash flow going forward. And that will extend, you've seen the high-grade we've seen from that, so that will be a very easy decision. The Bogoso and Chujah, really going -- from where we were in the second quarter, you can see the details in there. We had to add about 400,000 tonnes from our stockpiles into the processing facility, and we had a fantastic run in the processing facility. And in the third quarter, that reduction of the stockpile adding will -- because what we are mining will increase, we're getting better grade, will be about 110,000 to 120,000 tonnes, so we've come through the worst stage in terms of the ratio of ore. And then as it starts reducing, we get back to a normal push. So I don't have the exact number, but I thought it was about $20 million for the pushbacks at Bogoso.

Jeffrey A. Swinoga

Yes, it's about $18.6 million.

Samuel T. Coetzer

$18.6 million. So I don't have the exact number but with me, but as Jeff tells me, it's about $18.6 million for the pushbacks.

Paolo Lostritto - National Bank Financial, Inc., Research Division

So for the remainder of this year?

Samuel T. Coetzer

Yes, just to indicate to you, maybe -- it's very difficult to look at the cash costs as they are because there are some noncash items in the cash costs. But just to give you all the guidance on what we're seeing, the amount of checks or the cash that we write on a monthly basis isn't reducing. And in the first quarter, the expenses or the operating expenses, the checks that we wrote was about $64 million. And that has now reduced to $46.5 million, $46.6 million. Now there was that charge because of the noncash charge that indicated Bogoso is running at a higher cost which had to do with the drawing down that inventory. So we are focused, we've looked at it, Paolo, very closely and at the right decision to get Chujah and Bogo to that low strip and not give up on it. And we will probably have to put in some cash into that and we will from the $50 million that we have, and then next year we will see a sort of big benefit from those 2 pits forward.

Paolo Lostritto - National Bank Financial, Inc., Research Division

It might be too early because you haven't done your budgets for 2014 yet. But have -- do you get a sense of what the pushbacks of capitalized stripping is going to be for next year?

Samuel T. Coetzer

Well, it's going to be much better now. I haven't had the final numbers, but it will reduce from -- the first part of the year was about 12 or even higher certain months. We're now down to 10, then down to 2, and you can imagine, you just take 500,000 tonnes and you reduce that via stripper by 10 and then to reduce by 2, where the average cost somewhere between $3 and $3.60, depending on where we are in the pit. So it will be a massive impact for us from cash. And obviously, we also, Paolo, we also get back to the good grades which we haven't had in this quarter.

Operator

Our next question comes from Rahul Paul with Canaccord.

Rahul Paul - Canaccord Genuity, Research Division

Just to follow up. Could you tell me what your unit cost per tonne were in Q2 for Bogoso/Prestea, mining, process and G&A?

Samuel T. Coetzer

I think it was about $3.42, in that range, yes.

Rahul Paul - Canaccord Genuity, Research Division

Mining and whatever cost?

Samuel T. Coetzer

Yes. I think it was about 36? 36, yes.

Unknown Executive

Refractory.

Samuel T. Coetzer

Refractory plant, yes. And you know that we started at TSF, so that was about 36, right? I can get that number, I don't have it in front of me. And we started up the upside plant again or the non-refractory, and that is about 4,000 tonnes a day, and with all the mining cost and processing cost is now looking to be close to $14 a tonne.

Rahul Paul - Canaccord Genuity, Research Division

If you could just clarify to me, what was the operating supression in Q2 for Bogoso. I'm looking at that -- the strip ratio that would have been used in the calculation of the cash cost?

Samuel T. Coetzer

Are you talking ...

Rahul Paul - Canaccord Genuity, Research Division

Excluding those capitalized?

Samuel T. Coetzer

Are you talking just about Bogoso pit or some...

Rahul Paul - Canaccord Genuity, Research Division

Just the entire Bogoso/Prestea operations.

Samuel T. Coetzer

Okay. I mean, these 2 pits are about in pushback, Bogoso North and Chujah pit. So -- but the average was. . .

Jeffrey A. Swinoga

Yes, just to be clarified, we're capitalizing betterment stripping, and not capitalizing stripping over and above Bogoso North. So it's a bit difficult to break out from the actual stripping cost at Bogoso North versus capitalize and looking at our total mine operating expense. So it's a fair question. It's just -- if you look at the exact strip ratio to what would be normalized, and then you look at the accounting and what's been -- what does it make it, what does make it from a capitalize perspective. So it's something that we can certainly break out if you don’t have it.

Samuel T. Coetzer

Well, I mean, I think the question is just the strip ratio. And it was about 16.1 in the second quarter. If you take the tonnes that we might compared to what was now, and that was now reducing to 12, and it will go down very quickly from hereon.

Rahul Paul - Canaccord Genuity, Research Division

Actually, thanks, Sam. But what I was trying to get at was, I know I can calculate the 16.1, but I know some of that -- I get the sense that some of that include capitalized shipping. I just want to be in the position where I don't double count certain costs going forward.

Jeffrey A. Swinoga

Yes. But you know, Rahul, we can take it offline and go through that and that's something -- because what you would do, is you would take out the betterment stripping as being capitalized. You look at what the resulting net expenditures were and then you sort of figure out what's a normal strip ratio versus what we're actually doing in terms of the pushbacks at Bogoso North, and then you will come up with the numbers. So we can certainly walk through that.

Operator

Mr. Coetzer, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Samuel T. Coetzer

Certainly, I would like to thank everybody. Thank you, operator. And we hope to see you soon because I'm sure we'll get through it. Thank you. Bye.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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!