Golden Star gets Prestea sale away, but allows FGR to delay $5m cash payment

Bogoso-Prestea gold mine. Pic courtesy of Golden Star Resources

GOLDEN Star Resources completed the sale of its Prestea mine in Ghana, though under amended terms which allows the buyer, Future Global Resources (FGR), to delay a $5m cash payment until March or until it has provided surety to the Environmental Protection Agreement on its rehabilitation obligations.

In terms of the original agreement, FGR was to pay $5m in cash upfront. However, other constituents of the deal remain unchanged which is primarily that FGR assume $25m in negative working capital as per Prestea’s end-quarter accounts.

As per the original agreement, the balance of the deal consideration of some $25m will remain payable in two tranches of $10m by July 31, 2021 and $15m by July 31. The staged manner of the payments would allow FGR to get its hands around the asset.

Included in the package is the Bogoso Sulfide Project in which Golden Star will participate to the tune of $40m assuming it is developed. The project contains an estimated 1.76 million ounces of measured and indicated resources and 700,000 ounces of inferred resource. Prestea has been subsequently named Bogosu-Prestea in acknowledgement of the Bogosu growth potential.

The triggers for the additional $40m in cash payment is gold price performance: $20m is payable if the gold price is less than or equal to $1,400/oz increasing to $40m if the gold price averages $1,700/oz.

“The sale strengthens our balance sheet by providing a cash inflow of $30m by 2023 and removing negative working capital and liabilities from our balance sheet,” said Andrew Wray, CEO of Golden Star. Including the removal of liabilities, the deal has value of some $55m to Golden Star.

Golden Star would also accelerate the development of its other remaining asset, Wassa, also situated in Ghana, and “… look for other opportunities to further expand our business”. Wray said in July that with the transaction, Golden Star would become “… an attractive counter party” in the African gold sector: “We will have a clean balance sheet and a good asset,” he said of Wassa. Golden Star wrote down Prestea for $56.8m in February following a restructuring.

Golden Star said it would update its production guidance for 2020 at its third quarter results announcement which is scheduled for October 28.

It reported second quarter production of 50,600 oz compared to 48,400 oz in the second quarter of 2019. The all-in sustaining cost per oz fell 7%, resulting in a significant improvement in adjusted earnings before interest, tax, depreciation and amortisation of $33.7m compared to $8.8m last year.

The company also restructured a streaming deal with Royal Gold so that Bogosu-Prestea is separated from the current arrangement. Wassa still has just short of 130,000 oz to deliver in terms of the streaming deal which is for 10.5% of production for a 20% delivery payment.