Golden Star Resources Considered "Excellent Takeover Candidate"

Oct. 5.07 | About: Golden Star (GSS)

Permitting delays have hampered production at Golden Star Resources Ltd.'s (NYSEMKT:GSS) mines in Ghana, West Africa, but progress is being made at its flagship Bogoso/Prestea operation, now that an expansion project there is complete and commercial production was achieved at the end of the second quarter.

Noting that while progress is moving slowly, Blackmont Capital analyst Richard Gray said performance at Bogoso/Prestea will be crucial to the company’s fourth quarter in terms of maintaining its cash balance. If production comes in at the low end of Golden Star’s new guidance, cash costs are at the upper end, and gold prices average US$700 per ounce or more for the rest of 2007, the company won’t need additional funding, he told clients in a note.

Meanwhile, 2008 could be a very good year for the miner, he said, acknowledging its near-term risks. Potential production is estimated to be 500,000 ounces per year, while the company’s market cap is roughly $920-million. At the same time, Golden Star’s neighbors in the region (Newmont (NYSE:NEM), Gold Fields (NASDAQ:GOLD), AngoGold) are hungry for assets, Mr. Gray added. Therefore, he considers it an “excellent takeover candidate” and rates it a “buy” with a C$4.90 price target.

Wellington West’s Catherine Gignac is even more optimistic with a “buy” recommendation and C$5.50 price target.

As Golden Star demonstrates that its throughput, grades and recoveries at the Bogoso mine are sustainable, she thinks the stock will move higher and more in-line with its peers.

“Moderated expectations of the company’s ability to achieve their targets support a positive risk-reward scenario,” Ms. Gignac said in a note.

GSS 1-yr chart: