What the company showed off in an analyst and press site visit last week was promising to say the least. Bar the traditional execution risk inherent with mine start-ups, it is clear Golden Star is about to turn a very significant corner and become the gold company it was always meant to be.

When the Prestea underground operation later this year declares commercial production, the company will have completed a painful move from a refractory producer churning out 300,000-330,000 ounces per annum of gold at close to breakeven, to a company set to produce 255,000-280,000ozpa at a competitive all-in sustaining cost of US$970-1070/oz.

Such a transition, which could see the company produce 300,000oz at AISC of $800-850/oz in 2019, has been far from easy. In order to do this, the company had to park 2 million ounces of refractory reserves and take on an increasingly popular, yet controversial, streaming deal.

The pact signed in 2015 gave Golden Star $165 million of financing - $145 million related to the stream and a $20 million loan - in order to retire an onerous $38 million loan from Ghana's Ecobank, and fund the circa-$100 million development of the Wassa and Prestea underground assets.

When the company originally signed the agreement with Royal Gold, it had about $24 million of cash, had just sold 63,245 ounces of gold at a loss (March quarter) and had a market capitalisation of under $50 million.

Regardless of how compelling a business case the transition away from the refractory business was, the numbers on the table were not going to lead to a conventional finance facility.

By agreeing the pact, it may have been giving away some 240,000oz of gold at 20% of spot for the foreseeable future - followed by a 5.5% production ‘tail' at 30% of spot - but it was a better option than continuing to produce variable ounces at a loss in hope of being saved by a higher gold price.

And, while the stream may be adding another $70-90/oz onto its group AISC at current gold prices, according to CEO Sam Coetzer, the projects the company was pushing back then as part of its strategy shift should provide returns to keep all investors - not just Royal Gold - happy.

Wassa underground cost $39 million to build and is scheduled to provide a post-tax net present value (5% discount) of $176 million at $1,200/oz gold. Prestea underground is scheduled to cost $63 million to start up and give back a $141 million NPV (5% discount) at the same yellow-metal price.

The former, which went commercial in January, is due to produce a little over 660,000oz over a seven-year mine life, with the latter churning out 469,000oz.   

While the two assets' openpits will contribute output over this time frame - the Prestea openpit operation is scheduled to finish this year - Golden Star's future profitability will increasingly be tied to what goes on underground.

The good news is the new mines' progress indicates management and the consultants that put their signatures on the economic studies underpinning their development were being conservative in their initial projections.

Wassa underground's 2016 production may have lagged behind initial expectations, encountering a mining environment with more internal dilution than expected at the F shoot, but the company is now carrying out longitudinal stoping at the B shoot.

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"I have been banging my head on board tables for the past two years saying we need to follow up on that particular intersection"

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The lessons learned in 2016 after producing just 11,062oz from the F shoot, instead of the planned 20,000oz, has ensured it does not take the mineralisation at B shoot - the main Wassa underground orebody with grades of about 4.5g/t Au - for granted.

While Golden Star was in a close period - its March quarter results should be out shortly - all signs at Wassa underground point towards mining rates exceeding the 1400 tonne per day rate targeted for 2017. 

And, with the team moving into wider 30-40m stopes amenable to transverse stoping in July or August, rates could increase further, presenting more potential upside to the 2017 production estimate of 63,000oz.

Above ground, Golden Star is mining that same B shoot from the Wassa main pit (pictured). Thanks to a series of cost-cutting initiatives and efficiency gains in the face of falling prices, these operations are profitable around the $1100/oz gold-price mark, meaning above and below ground, it is making money. 

The situation is a little different at Prestea underground.

Having produced 9Moz of gold since 1877 - 6Moz from underground - the company is retracing steps taken decades, if not centuries, ago by developing an underground mine.

The difference here is consolidation. While many miners have worked under and above ground at Prestea, this is the first time the whole district has been tied up by one company. Even following on from the area's prolific history, Golden Star has been able to delineate a probable reserve of 490,000oz at an average grade of 13.9 g/t Au for the planned mine.

With the first stope expected to be blasted from West Reef this quarter, the company is completing refurbishments and readying for operations. Gold and Silver Investor Hub saw this work going on when travelling down to the main 24 level, 900m below surface, via the circa-1930s central shaft.

The age of the mine was clear to see, yet the competency of the rock and the improvements to all existing infrastructure confirm project manager Kent Shackel's assertion that Golden Star is building a modern mine at Prestea underground.

These up-to-date plans also come with risk.

The shrinkage stoping method the company plans on using to mine out the West Reef on three separate levels is neither new nor unusual, but mining it with alimaks is.

These modular machines have been used all over the world, including at Acacia Mining's Bulyanhulu gold mine (Tanzania), Barrick's Hemlo gold mine (Ontario, Canada) and Glencore's Raglan mine (Quebec, Canada). For all of the successes, though, they are also associated with Rubicon Minerals' Phoenix gold project (Ontario), a high-profile disaster analysts and investors will not forget for some time.

It was no surprise, then, the majority of questions posed to management by analysts on the Prestea underground tour related to the cost, flexibility and training associated with using these alimaks.

Management, and those supervising below ground, had all of the answers.

The reason for using these machines, which with 100m of rail to go up and down the stope raises cost about $500,000, is the speed of development. The development rate increases phenomenally with alimak mining, compared with the manual equivalent, according to underground superintendent Greg Scammell.

To extract the 469,000oz of high-grade material at the underground mine, the company plans to open up access and mine 59 stopes on three levels going down to a vertical depth of around 985m below surface.

The five alimaks the company purchased will drill and blast their way up (and down) raises within the stopes over the next five or so years. After creating a navigable route up and down the raises - and securing the raise with mesh - alimak operators carry out long-hole drilling and blasting for LHDs to pick up and load onto a skip, which is conveyed to surface.

Coetzer calls it "surgical mining" in the respect that the company is targeting mineralisation that grades around 14gpt gold.

Golden Star has secured alimak mining specialists Manroc to assist with the operation, and a three-year training program has already started to ensure the company can continue in the same vein as the Manroc specialists.

Considering Prestea underground plans to produce around 90,000 ounces of gold a year at AISC of $615/oz, there is potential for some major cash flow, even with that stream, at today's spot gold price.

This doesn't mean to say what is happening above ground is irrelevant; far from it.

If past estimates were correct, Golden Star would have exhausted the Prestea openpits long ago. Fortunately, the company has been able to keep finding more ore, delaying the $8 million retrofit of the CIL plant, which will see it go from processing 4000tpd at 2.5gpt gold (openpit) to 650,000tpd at 14gpt gold (underground).

 

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"The 500,000oz we have on the West Reef is not the end, in our opinion"

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As it stands, the company plans to produce 65,000-75,000oz from the openpits at Prestea in the first three quarters of this year. This will include 45,000oz from the high-grade (301,000t at 4.64g/t Au) Mampon deposit, 65km to the north of the CIL processing plant.

Yet, speaking to the openpit team, there is hope of continuing mining through to year-end. And, if team's past ingenuity is anything to go by, such a bet is worth taking.

Having always planned to build a road to connect some of the Prestea openpits and the local community, the company discovered a healthy amount of ore within the road's planned footprint.

Two million tonnes of ore at 2.3g/t Au later, the company has created a road (pictured) it and the community can use, while generating substantial openpit ounces not previously factored into guidance.

It's no wonder, then, its 2016 Prestea openpit production came in 28% above expectations.

Its continued outperformance alone will not end up indefinitely deferring the CIL plant changes, but it could push some capital spend out from the first half of this year - when production will be lower - to the second half - when group output should rise in line with Prestea underground going commercial and a move into the transverse stopes at Wassa underground's B shoot.

And, while gold recoveries from Wassa underground are an already favourable 94%, there are plans to boost this to 96% through optimisation. It could be similar at Prestea underground, which was expected to run at a 94% recovery rate, but could potentially benefit from more residence time in the processing circuit.

After going under and above ground at Wassa and Prestea, it was easy for Mining Journal to see what the company has in front of it - five-to-seven years of strong, profitable production.

It is the job of Mitch Wasel, vice president of exploration, to show Golden Star has much longer-term prospects on its books, though; a role he relishes.

Wasel (pictured holding core), who has been in Ghana with Golden Star since 1999, has seen the refractory to non-refractory transition better than most, being tasked with finding not just gold, but the non-refractory type, in recent years.

That has not restricted the field he has to work with at Wassa, Prestea and the 1,100km2 of Ashanti belt the company has in its portfolio. What has restricted him is the money the board has been able to give him to carry out his work, amid two new mine builds.

With equity funds recently raised and substantial cash flow on the horizon, the company has recently announced an exploration budget of $6.5 million that Wasel is able to put to good use.

At Wassa underground, he has identified extensions to the B shoot north and south of the current F shoot, which could yield further ounces in the near-term, while he also plans to drill step-out fences of the B shoot.

The last step out of the B shoot -315M - yielded 70.5m grading 5.9gpt gold from 742.4m depth.

"I have been banging my head on board tables for the past two years saying we need to follow up on that particular intersection," he said, adding the company has a fortunate habit of adding 500,000oz of resources to its base every time it steps out 200m from this shoot.

He may have a bruised forehead, but Wasel now has the cash to test this hypothesis again, and is planning to step out as much as 1km away from the B shoot to test its true mineralised extent.

Then there is the 242 trend - interpreted as the B shoot trend, folded around the deposit scale fold - that, according to Martin Raffield, senior vice president of project development and technical services, could become a second underground mine in its own right should the resources justify.

Already mined at surface, 242 has shown grades and thicknesses amenable to underground mining and Wasel is hopeful of knowing its early-stage potential from deeper assays by year-end.

On surface, the company plans to drill beneath the mined-out pits at Benso and Father Brown, which also appear to have underground mining credentials.

At Prestea underground, the company is confident of extending its 59-stope plan, laterally, with potential extensions of West Reef mineralisation, but it also has targets on the historically-mined Main Reef in its exploration plan, and intends to carry out deeper drilling in the South Gap - between the Bondaye shaft (currently used for secondary egress for dewatering) and the historic Tuapim shaft - which has had no deep drilling carried out on it.

As Raffield said: "The [circa] 500,000oz we have on the West Reef is not the end, in our opinion."

Raffield and his fellow management team won't be the first - or last - to make such a statement, but Mining Journal got the sense this potential has been bubbling away for some time. It is only now - with sight of free cash flow - that the company has been able to consider taking advantage of it.

Mines, projects and plans are all good on paper, but it is the people behind these that will be the ultimate success factor.

With much of the management team living in Ghana and going to site every day, there is the oversight to ensure plans are followed through and any changes are made swiftly and decisively.

Its strong Ghanaian workforce and ability to win over a local community that previously took issue with the old management's plans, is another relevant differentiator for its success.  

Golden Star may be back to its production profile of old in a few years' time, but it will leave it's former reputation for behind.