Business News of Saturday, 2 January 2016
Golden Star Resources Limited – which holds a 90% interest in the Wassa and Prestea gold mines in Ghana – on Thursday December 31, 2015, announced an amendment to the Gold Purchase and Sale Agreement (the “Stream Agreement”) with RGLD Gold AG (“RGLD”), a wholly-owned subsidiary of Royal Gold, Inc. (“RGI”).
The agreement, according to ClassFMonline.com’s source, was announced earlier in 2015 to provide an additional US$15 million of funding with an option to access a further US$5 million.
In May 2015 Golden Star, through its wholly-owned subsidiary, Caystar Finance Co., entered into a US$130 million stream financing with RGLD and a US$20 million term loan with RGI, respectively.
These financing arrangements, the statement said, were to enable Golden Star to continue its transformation to becoming a low cost, non-refractory gold producer.
To date, the term loan has been fully drawn and the stream advances have totaled US$55 million, the proceeds of which have been invested in the two development projects.
The Wassa Underground Project, ClassFMonline.com learnt, is progressing on schedule with approximately 820 meters of the twin decline advance completed, and the intersection with the F shoot orebody in November.
The Prestea Underground Project, ClassFMonline.com understands, has also advanced with Central Shaft rehabilitation and refurbishment work on 17 and 24 levels progressing as scheduled. Both Wassa and Prestea Underground Mines are expected to be in production in early 2017,” the statement added.
Due to the approximately US$150 per ounce drop in the gold price since this transaction was negotiated, and, as part of the funding of both of these Projects is coming from cash flow from existing operations, an amendment to the existing Stream Agreement was required as follows:
• The amendment includes a $15 million addition to the stream advance payment
• At Golden Star’s option, an additional $5 million of stream financing is available subject to certain conditions including procurement of a minimum of $5 million of third party investment
• To accommodate the increased stream advance payments, the stream percentages have been adjusted as follows:
o Golden Star will deliver from January 1, 2016, 9.25% of gold production to RGLD at a cash purchase price of 20% of spot gold
o From January 1, 2018 or commercial production of the Underground Mines, whichever is sooner, Golden Star will deliver 10.50% of production at a cash purchase price of 20% of spot gold until 240,000 ounces have been delivered
o If Golden Star exercises its option on the additional $5 million stream advance, the stream percentage from January 1, 2018 or commercial production of the Underground Mines, whichever is sooner, shall be increased to 10.90% at a cash purchase price of 20% of spot gold until 250,000 ounces have been delivered
o Thereafter, 5.50% of production at a cash purchase price of 30% of spot gold will be delivered
o Golden Star and RGLD are in the process of reviewing the final design for the Prestea Underground Project. If RGLD does not approve these changes, RGLD will not be required to fund $39 million for that project, in which case the cash price for future Prestea Underground gold production will increase to 70% and the overall gold delivery threshold referred to above will decrease to 196,000 ounces
“This amendment to the Stream Agreement with Royal Gold allows Golden Star to continue to transform to a low cost, non-refractory gold producer in spite of the lower gold price environment through which the whole industry is navigating,” said Sam Coetzer, President and CEO of Golden Star said in a statement.
“The development of the Wassa and Prestea Underground Mines will significantly lower the Company’s cash operating costs per ounce and considerably improve Golden Star’s mine life with opportunities for further resource conversion and exploration success at both assets. This amendment is another vote of confidence by Royal Gold in Golden Star and its development projects and demonstrates the strength of the business relationship between the two companies.”
Golden Star Resources (NYSE MKT: GSS; TSX: GSC; GSE: GSR) (“Golden Star” or the “Company”) is an established gold mining company that holds a 90% interest in the Wassa and Prestea gold mines in Ghana.
In 2014, Golden Star produced 261,000 ounces of gold and expects to surpass 2015 production guidance.
The Company is financed to pursue brownfield development projects at its Wassa and Prestea mines which are expected to transform these mines into lower cost producers from 2016 onwards.
As such, Golden Star offers investors leveraged exposure to the gold price in a stable African mining jurisdiction with significant development upside potential.