Update: Golden Star Resources To Cut Power Usage In Response To Ghana's Load Shedding Plan

| About: Golden Star (GSS)
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Summary

The Ghanaian Energy Commission has initiated a load shedding plan for December that will force Golden Star Resources to reduce its energy output.

This is an unexpected development.

While bearish, it is short term, and the company has ways to mitigate the loss - shares remain a compelling high risk/high reward proposition.

Golden Star Resources (NYSEMKT:GSS) announced that it will be reducing its power usage in December by 25% in response to the Ghanaian Energy Commission's load shedding plan. This means that the company will be producing less gold. The good news is that at Wassa the power plant will generate a surplus of power that feeds back into the grid, and this will offset the company's power reduction at its higher cost mine - Bogoso.

Golden Star Resources has had it rough the past couple of years with the gold price falling, costs rising at Bogoso, and a general lack of interest amongst investors when it comes to African mining companies. This is yet another burden that the company will have to endure, although as I said the blow will be somewhat mitigated. Investors should also keep in mind that in spite of a stock price that continues to melt down, the company is lowering its production costs, successfully raising capital to expand its Wassa operation, and just recently it came out with a positive PEA for its small Prestia Project.

As I argued last month, this remains a somewhat risky company as it continues to produce at a cost above the industry average, it has debt, and mining investments in Africa - while cheap - still carry added risk. The power usage restriction is arguably a manifestation of this last risk. That being the case, Golden Star Resources is doing a phenomenal job of improving its operations' efficiencies while it has a growth pipeline that it can finance. With that being the case, I think this is one of the best stocks for those looking to bottom fish in the gold mining space.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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