When the CEO of Golden Star Resources (AMEX: GSS) announced his resignation on Monday, I figured the company's quarterly results would be looking pretty grim. This was certainly the case with the recent discord at Harmony Gold (NYSE: HMY). Nevertheless, Golden Star went on to report quarterly performance that wasn't half bad. OK, technically it was half bad, but the glass looks half full to me.
Golden Star has two producing, open-pit mine properties in Ghana -- Bogoso/Prestea and Wassa. Most of Bogoso's gold resources don't lend themselves to recovery via the typical cyanidation process. To get at the gold, the company has built a sulfide processing plant, which recently began commercial production three months behind schedule. In the meantime, production at Bogoso has been declining and getting more expensive. Gold sales fell 22% sequentially, and per-ounce cash costs rose 22%. That's a great example of high fixed costs at work.
Over at Wassa, things are more stable, with relatively flat sequential production and cost results. Ore grades milled have improved both year over year and sequentially. That means less waste and more of the shiny stuff.
One of the biggest issues facing Golden Star and other miners in the country is the power situation. Ghana depends heavily on hydroelectric power, and it's going through the worst power crisis in a decade because of record low water levels.
Power rationing has led Golden Star to partner with Newmont Mining (NYSE: NEM), Gold Fields (NYSE: GFI), and AngloGold Ashanti (NYSE: AU) to construct additional diesel-generated capacity. The power plant's startup has also been delayed, but it wouldn't be fair to peg this issue on Golden Star.
While the power situation is dim, Golden Star's production outlook is quite bright. Full-year guidance of 270,000 to 300,000 ounces means that management sees second-half production at least doubling that of the first half. Just as important, the company reaffirmed its 2008 guidance of half a million ounces, which would be a dramatic gain over roughly 200,000 ounces produced in 2006.
So, with operations seemingly moving in the right direction, why is the CEO calling it quits? He says he wants to spend time with family, and in this rare instance, that may actually be the case. The man has been a buyer of the stock, not a seller, and he seems to have great faith in the company's future. I'll certainly be keeping an eye on this long-delayed growth story.
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Fool contributor Toby Shute doesn't own shares in any company mentioned. The Motley Fool has a shining, shimmering, splendid disclosure policy.
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