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Impairment Charges Drag Golden Star to Loss

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Gold producer Golden Star Resources, Ltd’s (GSS - Snapshot Report) second-quarter 2013 adjusted loss (barring one-time items) of 8 cents a share was wider than the Zacks Consensus Estimate of a loss of 4 cents. It also compared unfavorably to a penny per share earned in the year-ago quarter.

On a reported basis, Golden Star logged a net loss of $128.8 million (or 50 cents per share) in the second quarter as against the year-ago quarter’s net earnings of $0.03 million (break-even on per share basis). The loss resulted from $169.6 million (or 65 cents per share) of after tax non-cash impairment charges, arising from lower gold pricing, to write down the carrying value of Bogoso/Prestea  and Wassa/HBB mines.

Revenues slipped 12% year over year to $120.7 million from $136.3 million generated in the prior-year quarter largely due to a decrease in the average realized gold price. The company also faced a challenging market condition. However, sales beat the Zacks Consensus Estimate of $117 million. Average realized gold price decreased 11% year over year to $1,418 per ounce in the quarter.

Gold sales came in at 85,090 ounces in the quarter compared with 85,183 ounces sold in the prior-year quarter. Golden Star’s consolidated cash operating costs increased 11% year over year to $1,078 per ounce.

Operational Highlights

Golden Star currently holds a 90% equity stake in Golden Star (Bogoso/Prestea) Limited and Golden Star (Wassa) Limited, which respectively own the Bogoso/Prestea and Wassa/HBB open-pit gold mines in Ghana. In addition, Golden Star has a 90% interest in the currently inactive Prestea Underground mine in Ghana.

Wassa/HBB

At the Wassa/HBB non-refractory plant, Golden Star produced and sold 50,774 ounces of gold in the second quarter, up 23.6% from the year-ago quarter driven by higher ore grade processed. Gold revenues increased $6.4 million year over year to $72.1 million in the second quarter.

Bogoso/Prestea

At the Bogoso/Prestea refractory plant, Golden Star produced and sold 29,856 ounces of gold in the second quarter compared with 34,051 ounces sold in the second quarter of last year. At the Bogoso/Prestea non-refractory plant, Golden Star produced and sold 4,460 ounces of gold in the second quarter compared with 10,064 ounces sold in the second quarter in prior year.

Gold revenues decreased $22 million year over year to $48.6 million in the second quarter due to lower realized gold prices and the suspension of the Pampe open-pit mining operation in April.

Financial Position

Golden Star’s cash and cash equivalents were $52.7 million as of Jun 30, 2013, down 50.2% from $105.7 million as of Jun 30, 2012. Long-term debt decreased 62.3% to $56.5 million as of Jun 30, 2013, from $150 million as of Jun 30, 2012.

Golden Star’s cash flow from operations was $29.5 million in 2012 in the reported quarter, which improved 22.4% from $24.1 million generated last year.

Outlook

Golden Star, which operates in the gold-mining industry along with Barrick Gold Corporation (ABX - Analyst Report), Goldcorp Inc. (GG - Analyst Report) and Kinross Gold Corporation (KGC - Analyst Report), envisions continued lower costs and increased margins at the Wassa/HBB plant.

The company has taken steps to safeguard its financial position by being conservative with its cash position, deferring capital spending, and instituting cost-reduction measures specifically at Bogoso/Prestea. Moving forward, Golden Star believes these measures will strengthen its balance sheet and increase its flexibility.

Golden Star is on track to meet its projected gold production and sales volumes targets for 2013. For 2013, Golden Star expects its gold production to be within 290,000 ounces to 310,000 ounces, roughly 10% lower than its earlier guidance. Cash operating costs are anticipated to be in the range of $1,050 to $1,150 per ounce.

Golden Star currently retains a Zacks Rank #3 (Hold).
 

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