Golden Star Resources Ltd. is a Denver CO-based Canadian company that in 1999 shifted its focus from South American exploration to the acquisition of producing and development stage gold properties in Ghana, West Africa. Now a mid-tier gold company, Golden Star has two operating gold assets, Wassa and Bogoso/Prestea, with expansion plans that involve construction of a new Biox process facility at Bogoso and development of a number of satellite deposits.

UBS Research follows Golden Star. Recently, the analyst (Craig West) dropped his price target from US$4.50 to $4.25 on account of operational delays at Bogoso (Pampe). In addition, Wassa is disappointing with continuing high costs.

I have maintained a 12-month Price Target (PT) of $4.50 because, more than any other intermediate gold miner, I see Golden Star being acquired by a major.

Prompting me in that regard is the general chat among mining analysts plus the large insider stocks buys by senior management at a time that operations are not going as well as had been anticipated.

Here is a table of highlights, profitability and valuation from UBS.

At the Denver Gold Forum, Golden Star provided production estimates for its two producing operations, Bogoso and Wassa. 3Q06 gold production at Bogoso is estimated at 32,000 oz, up from 24,000 oz in the prior quarter, "as oxide operations utilize the recently completed crushing circuit for the sulphide expansion". At Wassa, 3Q06 gold production is estimated at 22,000 oz, comparable to disappointing Q2 production levels as, apparently, "power restrictions and resulting lower throughput offset the benefit of mining higher grade material".

UBS estimates 3Q06 EPS at $0.01, but I believe it will be a loss.

Samples of text from other Wall Street analysts:

"Golden Star continues to focus on the construction and commissioning of its sulphide expansion project at the Bogoso Mine. This project is key for the company's future in our view, as a substantial portion of the reserves at Bogoso are refractory and can not be processed with the current facilities. We believe the new BIOX sulphide processing plant is nearing completion, however, the company has indicated that commissioning of the plant would not be possible under the current power restrictions in Ghana. The Volta River Authority, the main supplier of power in the country, has imposed limitations on power consumption given record low water levels in its main reservoir.

We do not forecast any commercial production from the sulphide expansion in our 2006 estimates.

• CEO Peter Bradford's presentation focused on Bogoso/Prestea, its 85-km prospective land package. The company is nearing completion of construction of the 3.5 mmpta BIOX® expansion, within the $150 million budget.
• The key issue now is the power shortage in Ghana. Under Golden Star's current (curtailed) power allocation, based on July's consumption, it does not have sufficient power to start commissioning by the targeted end of September. The power authority is to review this allocation after September 30, and the company is cautiously hopeful of an increase.
• The next milestone will be the announcement of the completion of its credit facility, expected shortly.
• The company also announced three key appointments: Colin Belshaw as Vice President Operations, Daniel Owiredu as Vice President Ghana, and David Partridge as General Manager of the Bogoso/Prestea mine."

My take on this company, which is popular among my readers, is that it is a take-over play. Otherwise, I like the stock only on the basis that it sits at a financial break-even point and will become quite profitable on the ramp-up of production, and with higher gold prices. Conservative accounts can avoid this one, however. Also, GSS opened up +3 cents this morning as $GOLD is up about $5.50 to almost $600.

For readers who are interested in Golden Star Resources as an intermediate size goldminer with solid profit growth potential, I urge you to review their 20-minute presentation at the recent Denver Gold Forum. Golden Star

Golden Star Resources [GICS 15]
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