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Golden Star's 3Q a Pleasant Surprise

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Taken as a whole, the results appear to be much better than the market's already extremely low expectations.

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I was pleasantly surprised by Golden Star Resources' (GSS) 3Q report. Despite power problems, production increased from 2Q to 58,000 oz with cash costs of just $391, well below most analyst estimates that were up around $439. Total production for 2006 is expected to be 200,000 oz, which is less than the company's original guidance of 260,000 oz, although I believe the fact that they would not make their production guidance was already well known as a result of the power problems in Ghana.

As a result of the company securing a special power concession from the Volta River Authority (VRA) and production from auxiliary diesel generators (along with cutting back on exploration at the Prestea Underground project), the company was able to secure sufficient additional power in order to begin the commissioning of portions of the Bogoso Sulfide Expansion Project (BIOX). This, I had thought, could be potentially postponed entirely until the VRA made more power available. So, this is also a slight positive surprise.

Commissioning and testing of a portion of the Bogoso Sulfide Expansion Project commenced in October, and this work will continue through 4Q according to the company, with the date of commercial production depending on how that commissioning process goes. As far as a timeline to begin commercial production from the BIOX is concerned, the company has indicated that testing of the SAG mill is expected to commence in November. Also, the first inoculate is expected to be introduced to the BIOX tanks in November, with all BIOX tanks expected to be filled by the end of December and commercial production to hopefully begin by early 2007.

Continued power restrictions are expected in Ghana through mid-2007. However, GSS, along with the other larger mining companies in Ghana have cooperated to identify additional suitable 100 megawatt power stations that can be mobilized to Ghana and be operating in early 2007 that should provide more than enough power for the company's needs.

Taken as a whole, the results appear to be much better than the market's already extremely low expectations. The fact that the company has enough power to begin commissioning of the BIOX (although still obviously slowed due to reduced power available) is clearly the most important positive surprise, as the company continues its march towards its goal of producing of 500,000 oz in 2007.
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Position in GSS

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