Golden Star Resources (GSS), a gold mining company with extensive operations in Ghana issued an unusual press release on May 22nd following sharp declines in the share price over the past several trading sessions. The company has been plagued by a variety of operational issues, falling gold prices, higher financing costs and a slow permitting process. The shares have fallen more than 40% so far this month to $0.90.
On May 9th the company issued its Q1 earnings. On May 17th, after the close of the market, the company announced that it would be retiring $74.5 million of the principal outstanding of its 4.00% Convertible Senior Unsecured Debentures due November 30, 2012 by issuing $77.5 million of a new 5% convertible debenture and paying off the remaining $50.5 million with cash. The reaction the following day was a sharp sell-off from $1.32 to $1.13 on 5 times the normal volume. The shares dropped further to $0.90 on May 21st.
It is unusual for companies to issue press releases that specifically address trading volumes and share prices. The release reiterated gold production guidance for Q2, noted the completion of the new debt arrangements, and stated:
Subsequent to this announcement there has been an extraordinarily high volume of trading in the Company's common shares and the stock price has fallen approximately 32% since the May 17 announcement. There are no undisclosed material events at the Company that would support the recent deterioration in the stock price.
The market was clearly disappointed with the new convertible debt arrangements, and as noted earlier, gold prices have been falling. These two factors drove the price to $1.13 and led to a technical sell-off on May 22nd. According to StreetInsider.com:
technicians are selling the stock after the price traded very closely with both the 50- and 200-day SMA's yesterday [Monday, May 21st]. Shares are below $1 today.
Golden Star is not without problems and it keeps managing to disappoint investors with production problems each time it appears ready to turn the corner. Despite this, it seems the latest decline in the share price is overdone and the sub-$1 price presents an attractive entry point.
Disclosure: I am long GSS.
Additional disclosure: I have also sold August covered calls against a portion of my long position.