Golden Star caps busy balance sheet work with $50m ‘at the market’ share sale programme

Andrew Wray, CEO, Golden Star

GOLDEN Star Resources’ $50m ‘at the market’ equity programme was in the event the firm had drilling success at its Wassa gold mine in Ghana which represents its only source of production and short-term production growth.

Asked at the firm’s third quarter results why the facility was necessary, Golden Star CEO, Andrew Wray, said: “While we are conservative [with capital allocation plans], we thought it would be good to put [it] in place if there is a requirement for incremental capital”.

An ‘at the market’ equity programme allows a company to mobilise newly issued shares for placement through a third party at its discretion. Shares can be placed when their price is deemed advantageous and enables the company to manage volatility risk. There is no cost to having mobilised the shares if they remain unissued.

Wray said the board, including its largest shareholder, La Mancha Investments, had given its approval for the programme.

The mechanism was the finishing touch to a busy period of balance sheet restructuring for Golden Star in which it firstly sold its struggling Prestea mine. At a stroke, the company removed $24m in negative working capital as well as a $53m rehabilitation provision, it said in its quarterly statement.

The sale, to a company called Future Global Resources (FGR), will see it receive $5m in an upfront payment in March, and the $25m balance of the sale consideration in two later tranches.

As a supporting step, Golden Star extended and restructured a Macquarie credit facility to $70m by creating $35m in incremental liquidity, including the deferral of the loan’s principal repayments to September 2021, the company said.

As of September 30, the company had cash of $48.3m and had reduced net debt by $7.4m to about $50m. The move was critical: year-on-year, third quarter net debt was 30% higher during a period in which the spot price of gold has been elevated.

At about 41,000 ounces, third quarter gold production from Wassa was a fifth higher year-on-year. Total gold sold was about 21% higher whilst the gold price received, notwithstanding a hedging programme Golden Star has in place, was some 27% higher at $1,813/oz.

A preliminary economic assessment of the southern extension of Wassa is due to be completed in the current quarter with an announcement on its outcome scheduled for the beginning of 2021.

“Q3 2020 was a transformational quarter for the Company,” said Wray. “There has also been a normalisation of the company’s balance sheet with the liabilities being transferred to FGR allowing us to now report a positive net asset position,” he said.

“This will now enable us to focus fully on delivering the significant growth potential of Wassa, through an acceleration of infill drilling and exploration in 2021.”