Golden Star Resources Ltd

Golden Star Resources Ltd (TSX: GSC) is a Canadian-based gold mining and exploration company. The company holds interests in various gold exploration projects in Ghana and parts of West Africa, and it also holds and manages properties in Brazil.

Key Highlights:

• Increase in cash balance: The company reported higher cash and cash equivalent of USD 72.727 million in Q2FY21 compared to USD 60.809 million in Q4FY20.
• Decent long-term prospects: The company holds a prominent stake in the WASSA gold mine, which remained operation since 2017. A majority part of the company’s operations comes from the WASSA mine. Moreover, the mine has a potential reserve of more than roughly six years, which is expected to generate stable free cash flows.

Source: Company Presentation

• Macro remains favorable: Due to the ongoing sluggish economic growth and rising uncertainties due to the increase in Delta virus cases across the globe, gold prices are likely to remain firm. Consequently, we the firm to record improved realization in the coming days, which would further support the company’s financials.

Q2FY21 Financial Highlights:

• GSC announced its quarterly results, wherein the company posted revenue of USD 64.393 million, as compared to USD 75.368 million in pcp. The slide was primarily due to lower gold sales of 37,683 oz, as compared to 46,503 oz in pcp.
• Mine operating profit stood at USD 25.470 million, as compared to USD 35.532 million in pcp. The slide was primarily due to lower revenue, partially offset by a lower cost of sales.
• The quarter was marked by higher exploration expense, increase in share-based compensation expense, coupled with an increase in net other expense.
• The company reported its net loss of USD 10.418 million, as compared to the net profit of USD 11.658 million in pcp.

Q2FY21 Income statement Highlights (Source: Company Report)

Risks: The company’s financials are dependent on the international gold prices. Hence, volatility in the commodity prices would impact the company’s overall performance.

Valuation Methodology (Illustrative): Price to Cash flow

Stock Recommendation:

For FY21, the company expects its gold production in between 145,000 to 155,000 ounces, while AISC costs are estimated between USD 1,150/ oz to USD 1,250/oz. The company expects its total capital expenditure between USD 45 to USD 50 million. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Aura Minerals Inc, Karora Resources Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 3.21 on October 08, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on October 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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