Golden Star Resources: Prestea Mine Is Hurting Production

Summary

• Preliminary gold production was 52 Koz for the fourth quarter of 2019.
• Gold production guidance for 2020 is 195 Koz-210 Koz at a cash operating cost per ounce of $790-850.
• The Prestea Mine is weak. The mined and milled tonnes were lower sequentially, given a lower open pit contribution, underground stope availability, and sequencing.
• I see GSS as a good short-term trading opportunity, but a poor investing tool.

Source: Golden Star Resources - Wassa underground mine

Investment thesis

The Toronto-based Golden Star Resources (GSS) is a small "African play" gold producer that owns (90%) two gold mines in Ghana, West Africa. Also, the company holds an exciting project called the Father Brown project located near Takoradi in Ghana as well.

The investment thesis is quite complex with Golden Star Resources. I do not recommend a long-term investment in the company due primarily to the quality of the company assets and the location.

However, in Ghana, almost 20% of government revenues come from the Mining Sector. The country has an ongoing massive issue with illegal mining, but is considered "safe jurisdiction."

GSS has reached an attractive price in early January after an unprecedented selloff in August last year. However, since the start of 2020, the stock has been going down very rapidly despite a price of gold well above $1,500 per ounce. Often, gold miners are not following the same trend as the gold bullion. The main issue is that the mining industry is affected by costs and, in some circumstances, behaves more like equity than the commodity it represents. It is not specific to Gold Star Resources, and we can experience the same phenomenon throughout the gold mining industry.

To illustrate this new dichotomy, I am showing below a chart comparison between two crucial ETFs in this industry. The VanEck Vectors for gold miners and an ETF attached to gold bullion. As we can see, SPDR Gold Trust ETF (GLD) has outperformed VanEck Vectors Gold Miners ETF (GDX) significantly.

A quick look at production and gold assets

Presentation

1 - The Wassa complex (including underground), which is the flagship asset. The company owns a 90% stake.

2 - The Prestea complex (including underground). The company owns a 90% stake.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I trade GSS short term but I do not have a long term position.