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HumanaG O L D E N S T A R
2 0 0 8 A n n u A l R e p o R t
Bogoso North
Wassa
GHANA
Bogoso
Pampe
Chujah-Dumasi
Buesichem
Prestea Mine
Prestea
Bogoso
Processing
Plants
Prestea South
Mine &
Processing Plant
Benso
Benso Mine
Adoikrom
Hwini-Butre
Father Brown
Active Pits
Deposits
Mining Lease
Exploration - GSR
Exploration - JV
100 km
North
Golden Star Resources Ltd. is a 25-year-old mid-tier gold mining company that produced 295,930
ounces of gold in 2008 and plans to produce 400,000 ounces in 2009. the Company has two operating mines
in Ghana, West Africa. Growth opportunities for the future will be a result of successful exploration combined
with appropriate acquisitions that will be accretive to shareholders.
During the last commodities down cycle, Golden Star was able to acquire property at relatively low prices,
allowing the Company to become the largest holder of mining properties on the prolific Ashanti Gold trend.
this land position, combined with our two processing plants at Bogoso/prestea, is the basis for expansion at
the Bogoso/prestea mine and the source of future growth of the Company. We can now process any ore type
found at the mine site.
As we expected from the time we acquired the Wassa assets and, subsequently the HBB properties, the Wassa
mine has turned into a significantly profitable operation. profitability was enhanced when Benso commenced ore
delivery to Wassa in 2008, and will be further improved with even higher grade ore from Hwini-Butre expected
in the second half of 2009.
Shares of Golden Star are widely held by both retail and institutional shareholders and are traded on the nYSe
Alternext uS stock exchange, toronto Stock exchange and Ghana Stock exchange under the symbols GSS,
GSC and GSR, respectively.
Front Cover
the end result of all our exploration and mining activities and the source of our market valuations is the amount of gold bars,
doré, produced. From our beginnings as a producing company in 1999 with production around 20,000 ounces and mineral
resources of some 200,000 ounces of gold, we have grown to gold production of almost 300,000 ounces with significant
mineral resources. the goal of management continues to be to build shareholder value through increased gold production,
increased mineral reserve and resource bases, and reduced costs across the board, accomplished in a safe manner. these
goals will be attained due to the efforts of our employees, who are the fundamental drivers of our success.
Forward-Looking Statements are made in this report to give the reader an indication of our business prospects, plans and objectives. Although we believe
these statements are reasonable as of the date of this report, readers are cautioned that forward-looking statements are inherently uncertain and involve risks
and uncertainties that could cause actual results, performance or achievements to differ materially from those stated. there can be no assurance that future
developments affecting Golden Star will be those anticipated by us. Readers should refer to the risks involved in making forward-looking statements, which are
given on pages 3 and 20 of our Form 10-K, contained herein.
non-GAAp Measures are used in this report, in particular “total cash cost” and “cash operating cost” on a per-ounce of gold basis. this information differs from
measures of performance prepared in accordance with GAAp. Readers should examine the cautionary and explanatory statement on pages 3 and 47 of our Form
10-K, contained herein.
Letter to Shareholders
Tom Mair
President & CEO
The year 2008 will be remembered through-
out history for its unprecedented financial and
We continued to optimize the Bogoso sulfide pro-
cessing plant. Approximately 80% of the mineral
economic crisis. As a Company, we were impact-
reserves and resources at Bogoso/Prestea are
ed by extraordinary volatility in gold prices, oil
refractory, hence we commenced construction
prices, power prices and in the financial markets.
of the sulfide plant in 2005. Commercial produc-
Despite this volatile situation, Golden Star was
tion commenced in mid-2007 at the sulfide plant
able to complete another year of growth. Most
at Bogoso. In 2008, we increased recovery and
significantly, we:
throughput rates at the mill.
• Achieved record production with sales of
Recovery rates at the Bogoso sulfide processing
295,927 ounces of gold (up 20% from 2007);
plant steadily improved through the year, from
• Continued our improvements at the Bogoso
sulfide processing plant;
• Commenced mining at the Benso mine
and processing this high grade ore at the
Wassa mill; and
• Were awarded a Nedbank Capital Green
Award for our GSOPP (Golden Star Oil Palm
Plantation) project.
Record gold sales were again achieved by the
Company due to higher metallurgical recover-
ies at the Bogoso mine and the start of produc-
57.0% in the fourth quarter of 2007 to 71.1% in
the fourth quarter of 2008. Recovery was over
74% in December 2008. Our focus going forward
is to reliably mill 750,000 to 780,000 tonnes of
ore in each quarter while continuing to improve
recovery rates.
Our other challenge at the Bogoso operation is
cost containment. We made substantial prog-
ress by reducing costs 21% in the fourth quarter
compared to the third quarter of 2008. We expect
to make further progress on this front in 2009.
tion from the Benso mine with a total of 295,927
The Bogoso oxide processing plant was put on
ounces for 2008, an increase of 20% over 2007.
care and maintenance in the third quarter. At
Our goal is to increase gold sales in 2009 to
Prestea South, we have submitted all necessary
400,000 ounces, a further 35% increase.
200 8 Annual Repor t | 1
applications for the permitting process. The next
As we continue our exploration efforts in this most
step in this process is to hold public hearings to
prospective area, we expect to expand our reserve
allow our catchment communities an opportunity
and resource base at HBB, all within trucking dis-
to learn about the project and voice their con-
tance to Wassa.
cerns and comments. After receiving the environ-
mental permit, we will build a 10 kilometer haul
road and begin hauling ore to the oxide mill late in
2009, which will allow us to restart the oxide mill.
We continued to invest in the expansion of the
Golden Star Oil Palm Plantation. A highlight for
the year was the hand over of the first 4-hectare
farms to 69 smallholders. As well as providing
Wassa continues to be an unsung hero for
alternative sustainable livelihoods in the catch-
Golden Star and 2008 was no exception. The 50
ment areas, there are also benefits from the
kilometer haul road from Wassa to Benso was
sustainable employment provided during the de-
completed late in the third quarter and deliver-
velopment of the plantation. Providing this em-
ies of the high grade Benso ore commenced at
ployment reduces the number of people working
that time. The high grade ore makes Wassa a
as illegal miners.
50,000 ounce per quarter gold producer. Wassa
is projected to produce 200,000 ounces of gold
in 2009 at a cash cost of $450 per ounce.
We were awarded a Nedbank Capital Green
award for our efforts on the Golden Star Oil Palm
Plantation during the year. We were the first non–
In the fourth quarter of 2008, we began the con-
South African company to be granted an award
struction of the haul road linking the Hwini-Butre
by Nedbank. This is a wonderful honor and a tes-
properties to the Benso property. When this road
tament to our efforts at sustainability.
is completed, we will have all the HBB property
areas connected to the Wassa processing plant.
At the end of June last summer, Golden Star and
all the other mining companies in Ghana were
subjected to an approximately 75% increase in
2 | G olden Star
the price of electricity. The mining industry in
at Golden Star for their continuing efforts to deliv-
Ghana has worked diligently with the government
er gold production at reasonable costs. Lastly, we
to reach a mutually acceptable solution to the is-
thank our loyal shareholders for the continuing
sue of power pricing. Now that Ghana has com-
support they have shown the Company during the
pleted its presidential elections last December,
year. We are looking forward to a successful and
we are continuing our negotiations for lowered
profitable future as our various projects develop
electrical power prices and we expect to gain
and mature.
some relief from these high electricity costs that
are based on the much higher oil prices experi-
Yours sincerely,
enced last year.
Tom Mair
President & CEO
March 27, 2009
In terms of exploration, we continued to explore
for gold both near our operating mines and with
greenfields programs in Cote d’Ivoire, Burkina
Faso, Niger, Sierra Leone, Suriname, Brazil and
French Guiana. While we are mindful of conserv-
ing our cash position, we recognize the impor-
tance of exploration to reserve and resource
replacement. We have exploration activities
throughout our project areas; we had some good
success in the HBB areas last year and we will
continue exploration activities there.
In closing, I would like to thank our Board of Di-
rectors and management team for their support
in my first year as CEO. I thank all the employees
200 8 Annual Repor t | 3
Mineral Reserves & Mineral Resources
Mineral Reserves
The following table summarizes our estimated Proven and Probable Mineral Reserves as of December 31, 2008 and December 31, 2007:
Proven
Gold
Grade
(g/t)
Tonnes
(millions)
Probable
Total
Ounces
(millions)
Tonnes
(millions)
Gold
Grade
(g/t)
Contained
Ounces
(millions)
Tonnes
(millions)
Gold
Grade
(g/t)
Contained
Ounces
(millions)
1.2
9.6
10.8
0.4
0.4
1.6
9.6
11.2
16.1
1.89
3.34
3.18
1.01
1.01
1.68
3.34
3.10
2.78
0.08
1.03
1.11
0.01
0.01
0.09
1.03
1.12
1.44
3.9
9.1
13.0
11.3
11.3
15.2
9.1
24.3
46.3
2.90
3.07
3.02
2.47
2.47
2.58
3.07
2.76
2.35
0.36
0.90
1.26
0.90
0.90
1.26
0.90
2.16
3.49
5.1
18.7
23.8
11.7
11.7
16.8
18.7
35.5
62.3
2.66
3.21
3.09
2.42
2.42
2.49
3.21
2.87
2.46
0.43
1.93
2.36
0.91
0.91
1.35
1.93
3.28
4.93
Property
Bogoso/Prestea
Non Refractory
Refractory
Total
Wassa
Non Refractory
Total
Totals
Non Refractory
Refractory
Total 2008
Total 2007
Notes to the Mineral Reserves Statement:
Our mineral reserves for 2008 and 2007 were determined using a gold price of $700 and $560 per ounce,
respectively, which is approximately equal to the three-year average price of gold and is based on a
mine plan derived from an optimized pit shell. The stated Mineral Reserves have been prepared in
accordance with Canada’s National Instrument 43-101 Standards of Disclosure for Mineral Projects.
Mineral Reserves are equivalent to Proven and Probable Reserves as defined by the US Securities and
Exchange Commission Industry Guide 7.
The 2008 and 2007 Mineral Reserves have been prepared under the supervision of Mr. Peter Bourke,
P.Eng., Vice President Technical Services for the Company. Mr. Bourke is a “Qualified Person” as
defined by Canada’s National Instrument 43-101. Additional information on the estimation of our
Mineral Reserves can be found in the 10-K report filed with www.sedar.com and www.sec.gov and
contained within this document.
Mineral Resources
Mineral Reserves are expressed on a 100% basis. Our share of the Mineral Reserves is subject to the
Government of Ghana’s 10% carried interest, which entitles it to a 10% dividend once our capital costs
have been recovered.
The terms “non refractory” and “refractory” refer to the metallurgical characteristics of the ore. We plan to
process the refractory ore in our sulfide processing plant at Bogoso and to process the non refractory
ore using our more conventional gravity, flotation and cyanidation techniques.
Property
Bogoso/Prestea
Prestea Underground
Wassa
Benso
Hwini-Butre
Goulagou
Chichiwelli Manso
Paul Isnard
Total 2008
Total 2007
Measured
Indicated
Measured & Indicated
Inferred
Tonnes
(millions)
Gold Grade
(g/t)
Tonnes
(millions)
Gold Grade
(g/t)
Tonnes
(millions)
Gold Grade
(g/t)
Tonnes
(millions)
Gold Grade
(g/t)
5.4
0.0
0.0
–
–
–
–
–
5.4
3.1
2.24
–
0.98
–
–
–
–
–
2.24
1.75
11.9
1.4
5.2
0.8
1.0
2.7
–
–
22.9
20.0
2.54
13.92
0.78
2.24
3.43
1.80
–
–
2.75
2.72
17.3
1.4
5.2
0.8
1.0
2.7
–
–
28.3
23.2
2.24
13.92
0.78
2.24
3.43
1.80
–
–
2.65
2.59
2.5
5.0
0.0
0.4
0.4
0.5
1.0
9.2
19
20.2
3.43
7.44
0.00
4.06
4.74
1.00
2.12
2.51
3.94
3.68
Notes to the Mineral Resources Statement:
The Mineral Resources other than for Goulagou were estimated using optimized pit shells at a gold price of
$800 per ounce from which Mineral Reserves have been subtracted. Other than gold price, the same
optimized pit shell parameters and modifying factors used to determine the Mineral Reserves were
used to determine the Mineral Resources. The Prestea Underground Mineral Resource was estimated
using an $800 per ounce gold price and are commensurate with estimated underground mining costs.
For Goulagou, Mineral Resources were estimated using optimized pit shells at a gold price of $560 per
ounce. Pit optimization parameters were estimated based on feasibility studies on other similar gold
deposits in Burkina Faso, Golden Star’s experience in West Africa, and from limited metallurgical test
work on the Goulagou ores. In 2007 we used a gold price of $640 per ounce for the optimized shell.
The Mineral Resources were estimated in accordance with the definitions and requirements of Canada’s
National Instrument 43-101. The Mineral Resources are equivalent to Mineralized Material as defined by
the US SEC Commission Industry Guide 7.
4 | G olden Star
Mineral Resources are shown on a 100% basis. The Mineral Resources shown above are subject to the
Government of Ghana’s 10% carried interest, which entitles it to 10% of dividend once capital costs
have been recovered, in the case of Bogoso/Prestea and Wassa. The Mineral Resources at Prestea
Underground are subject to the Government of Ghana’s 19% minority interest, with Golden Star
currently having an 81% beneficial interest. Goulagou is 10% owned by a third party.
US investors should read the cautionary statements relating to Mineral Rsources and Inferred Mineral
Resources in the Company’s 10-K report filed on www.sedar.com and www.sec.gov and contained
within this document.
The Qualified Person for the estimation of the Mineral Resources is Mr. S. Mitchel Wasel, Golden Star’s Vice
President of Exploration.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
⌧⌧⌧⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2008
Commission file number 1-12284
GOLDEN STAR RESOURCES LTD.
(Exact Name of Registrant as Specified in Its Charter)
Canada
(State or other Jurisdiction of
Incorporation or Organization)
10901 West Toller Drive, Suite 300
Littleton, Colorado
(Address of Principal Executive Office)
98-0101955
(I.R.S. Employer
Identification No.)
80127-6312
(Zip Code)
Registrant’s telephone number, including area code (303) 830-9000
Securities registered or to be registered pursuant to Section 12 (b) of the Act:
Title of Each Class
Name of each exchange on which registered
NYSE Alternext US
Common Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:2) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes (cid:2) No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the “Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. (See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act). (Check one):
Large accelerated filer: ⌧ Accelerated filer: (cid:2) Non-accelerated filer: (cid:2) Smaller reporting company (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes (cid:2) No ⌧
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately
$594.7 million as of June 30, 2008, based on the closing price of the shares on the NYSE Alternext US as of that date of $2.69 per
share.
Number of Common Shares outstanding as at February 24, 2009: 236,005,311.
Portions of our Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with the 2009 Annual Meeting of Shareholders are incorporated by reference to Part III of this Annual Report on
Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
ITEM 1. BUSINESS ................................................................................................................................................................
ITEM 1A. RISK FACTORS ....................................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS..................................................................................................................
ITEM 2. DESCRIPTION OF PROPERTIES...........................................................................................................................
ITEM 3. LEGAL PROCEEDINGS..........................................................................................................................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............................................................
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ..........................................................................................................................................................................
ITEM 6. SELECTED FINANCIAL DATA.............................................................................................................................
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ....................................................................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .......................................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..........................................................................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
10
20
29
30
42
42
42
45
46
59
61
98
DISCLOSURE ....................................................................................................................................................................
ITEM 9A. CONTROLS AND PROCEDURES.......................................................................................................................
98
ITEM 9B. OTHER INFORMATION ......................................................................................................................................
98
ITEMS 10, 11, 12, 13 AND 14 ................................................................................................................................................
98
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES ........................................................................................
99
SIGNATURES................................................................................................................................................................................... 102
EXHIBIT INDEX .............................................................................................................................................................................. 103
REPORTING CURRENCY, FINANCIAL AND OTHER INFORMATION
All amounts in this report are expressed in United States (“US”) dollars, unless otherwise indicated. Canadian currency is denoted as
“Cdn$.”
Financial information is presented in accordance with accounting principles generally accepted in Canada (“Cdn GAAP” or “Canadian
GAAP”). Differences between accounting principles generally accepted in the US (“US GAAP”) and Canadian GAAP, as applicable
to Golden Star Resources Ltd., are explained in Note 25 to the Consolidated Financial Statements.
References to “Golden Star,” the “Company,” “we,” “our,” and “us” mean Golden Star Resources Ltd., its predecessors and
consolidated subsidiaries, or any one or more of them, as the context requires.
NON-GAAP FINANCIAL MEASURES
In this Form 10-K, we use the terms “total operating cost per ounce”, “total cash cost per ounce” and “cash operating cost per ounce”
which are considered Non-GAAP financial measures as defined in SEC Regulation S-K Item 10 and applicable Canadian securities
law and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Cdn GAAP
or US GAAP. See Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations for a definition of
these measures as used in this Form 10-K.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This Form 10-K contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended, and within the meaning of applicable Canadian securities law,
with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events,
capital expenditures, and exploration and development efforts. Words such as “anticipates,” “expects,” “intends,” “forecasts,” “plans,”
“believes,” “seeks,” “estimates,” “may,” “will,” and similar expressions (including negative and grammatical variations) tend to
identify forward-looking statements.
Although we believe that our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we
cannot be certain that these plans, intentions or expectations will be achieved. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Form 10-K.
These statements include comments regarding: anticipated attainment of gold production rates; production and cash operating cost
estimates for 2009; anticipated commencement dates of mining and production, including at Prestea South and the Hwini-Butre
property; estimated development costs for the Hwini-Butre property in 2009; anticipated ore delivery from and life of Prestea South
pits; production capacity, production rates, and production costs; cash operating costs generally; gold sales; mining operations and
recovery rates; ore delivery; ore processing; potential mine life; permitting; establishment and estimates of Mineral Reserves and
Resources; geological, environmental, community and engineering studies; timing and results of feasibility studies; exploration efforts
and activities; availability, cost and efficiency of mining equipment; ore grades; reclamation work; our anticipated investing and
exploration spending in 2009; identification of acquisition and growth opportunities; power costs, the ability to meet total power
requirements, commencement and completion of construction of the Bogoso power plant and access to the power plant once
completed; retention of earnings from our operations; our objectives for 2009; and sources of and adequacy of liquidity to meet capital
and other needs in 2009.
•
•
•
•
The following, in addition to the factors described under “Risk Factors” in Item 1A below, are among the factors that could cause
actual results to differ materially from the forward-looking statements:
significant increases or decreases in gold prices;
losses or gains in Mineral Reserves from changes in operating costs and/or gold prices;
failure of exploration efforts to expand Mineral Reserves around our existing mines;
unexpected changes in business and economic conditions;
inaccuracies in Mineral Reserves and non-reserves estimates;
changes in interest and currency exchange rates;
timing and amount of gold production;
unanticipated variations in ore grade, tonnes mined and crushed or milled;
unanticipated recovery or production problems;
effects of illegal mining on our properties;
changes in mining and processing costs, including changes to costs of raw materials, supplies, services and personnel;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in metallurgy and processing;
availability of skilled personnel, contractors, materials, equipment, supplies, power and water;
changes in project parameters or mine plans;
costs and timing of development of new Mineral Reserves;
weather, including drought or excessive rainfall in West Africa;
changes in regulatory frameworks based upon perceived climate trends;
results of current and future exploration activities;
results of pending and future feasibility studies;
acquisitions and joint venture relationships;
political or economic instability, either globally or in the countries in which we operate;
changes in regulations affecting our operations, particularly in Ghana, where our principal producing properties are
located;
local and community impacts and issues;
availability and cost of replacing Mineral Reserves;
timing of receipt and maintenance of government approvals and permits;
unanticipated transportation costs and shipping incidents and losses;
accidents, labor disputes and other operational hazards;
environmental costs and risks;
unanticipated title issues;
competitive factors, including competition for property acquisitions;
possible litigation; and
availability of capital at reasonable rates or at all.
These factors are not intended to represent a complete list of the general or specific factors that could affect us. Your attention is
drawn to other risk factors disclosed and discussed in Item 1A below. We undertake no obligation to update forward-looking
statements except as may be required by applicable laws.
CONVERSION FACTORS AND ABBREVIATIONS
For ease of reference, the following conversion factors are provided:
1 acre........................................... = 0.4047 hectare
1 foot........................................... = 0.3048 meter
1 gram per metric tonne .............. = 0.0292 troy ounce/short ton
1 short ton (2000 pounds) ........... = 0.9072 tonne
1 tonne ........................................ = 1,000 kg or 2,204.6 lbs
1 hectare...................................... = 10,000 square meters
1 mile
1 troy ounce
1 square mile
1 square kilometer
1 kilogram
1 hectare
= 1.6093 kilometers
= 31.1035 grams
= 2.59 square kilometers
= 100 hectares
= 2.204 pounds or 32.151 troy oz
= 2.471 acres
The following abbreviations may be used herein:
Au ............................................... = gold
= gram
g
= grams per tonne
g/t
ha
= hectare
km ............................................... = kilometer
km2 .............................................. = square kilometers
kg
m
= kilogram
= meter
m2
m3
mg
mg/m3
T or t
oz
ppb
Ma
Note: All units in this report are stated in metric measurements unless otherwise noted.
= square meter
= cubic meter
= milligram
= milligrams per cubic meter
= tonne
= troy ounce
= parts per billion
= million years
GLOSSARY OF TERMS
We report our Mineral Reserves to two separate standards to meet the requirements for reporting in both Canada and the United States
(“US”). Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 (“NI 43-
101”). The definitions in NI 43-101 are adopted from those given by the Canadian Institute of Mining, Metallurgy and Petroleum. US
reporting requirements for disclosure of mineral properties are governed by the Securities and Exchange Commission (the “SEC”)
Industry Guide 7. These reporting standards have similar goals in terms of conveying an appropriate level of confidence in the
disclosures being reported, but embody differing approaches and definitions.
We estimate and report our Mineral Resources and Mineral Reserves according to the definitions set forth in NI 43-101 and modify
them as appropriate to conform to SEC Industry Guide 7 for reporting in the U.S. The definitions for each reporting standard are
presented below with supplementary explanation and descriptions of the similarities and differences.
NI 43-101 DEFINITIONS
Mineral Reserve The term “Mineral Reserve” refers to the economically mineable part of a Measured or Indicated Mineral
Resource demonstrated by at least a preliminary feasibility study. The study must include adequate information
on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of
reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and
allowances for losses that may occur when the material is mined.
Proven Mineral
Reserve
The term “Proven Mineral Reserve” refers to the economically mineable part of a Measured Mineral Resource
demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining,
processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that
economic extraction is justified.
Probable
Mineral
Reserve
Mineral
Resource
Measured
Mineral
Resource
Indicated
Mineral
Resource
The term “Probable Mineral Reserve” refers to the economically mineable part of an Indicated, and in some
circumstances, a Measured Mineral Resource demonstrated by at least a preliminary feasibility study. This study
must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction is justified.
The term “Mineral Resource” refers to a concentration or occurrence of diamonds, natural solid inorganic
material, or natural solid fossilized organic material including base and precious metals, coal, and industrial
minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable
prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a
Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.
The term “Measured Mineral Resource” refers to that part of a Mineral Resource for which quantity, grade or
quality, densities, shape and physical characteristics are so well established that they can be estimated with
confidence sufficient to allow the appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and
reliable exploration, sampling and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both
geological and grade continuity.
The term “Indicated Mineral Resource” refers to that part of a Mineral Resource for which quantity, grade or
quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and economic parameters, to support mine planning and evaluation
of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing
information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
Inferred
Mineral
Resource
Qualified
Person (1)
The term “Inferred Mineral Resource” refers to that part of a Mineral Resource for which quantity and grade or
quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but
not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
The term “qualified person” refers to an individual who is an engineer or geoscientist with at least five years of
experience in mineral exploration, mine development or operation or mineral project assessment, or any
combination of these, has experience relevant to the subject matter of the mineral project and the technical report
and is a member in good standing of a professional association.
SEC INDUSTRY GUIDE 7 DEFINITIONS
Reserve
The term “reserve” refers to that part of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination. Reserves must be supported by a feasibility (2) study done to
bankable standards that demonstrates the economic extraction. (“bankable standards” implies that the confidence
attached to the costs and achievements developed in the study is sufficient for the project to be eligible for
external debt financing.) A reserve includes adjustments to the in-situ tonnes and grade to include diluting
materials and allowances for losses that might occur when the material is mined.
proven reserve
The term “proven reserve” refers to reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed
sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape depth and mineral content of reserves are well-established.
probable reserve The term “probable reserve” refers to reserves for which quantity and grade and/or quality are computed from
information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and
measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between points of observation.
mineralized
material (3)
non-reserves
The term “mineralized material” refers to material that is not included in the reserve as it does not meet all of the
criteria for adequate demonstration for economic or legal extraction.
The term “non-reserves” refers to mineralized material that is not included in the reserve as it does not meet all
of the criteria for adequate demonstration for economic or legal extraction.
exploration stage An “exploration stage” prospect is one which is not in either the development or production stage.
development stage A “development stage” project is one which is undergoing preparation of an established commercially mineable
deposit for its extraction but which is not yet in production. This stage occurs after completion of a feasibility
study.
production stage A “production stage” project is actively engaged in the process of extraction and beneficiation of Mineral
Reserves to produce a marketable metal or mineral product.
(1.)
Industry Guide 7 does not require designation of a qualified person.
(2.) For Industry Guide 7 purposes the feasibility study must include adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
(3.) This category is substantially equivalent to the combined categories of Measured Mineral Resource and Indicated Mineral
Resource specified in NI 43-101.
ADDITIONAL DEFINITIONS
alteration - any change in the mineral composition of a rock brought about by physical or chemical means
arsenopyrite - a gray-to-white metallic mineral consisting of sulfide of iron and arsenic
Archean - the earliest eon of geologic time, dating from about 3800-2500 million years ago
assay - a measure of the valuable mineral content
Au - gold
bio-oxidation - a processing method that uses bacteria to oxidize refractory sulfide ore to make it amenable to normal oxide ore
processing techniques such as carbon-in-leach
Birimian - a thick and extensive sequence of Proterozoic age metamorphosed sediments and volcanics first identified in the Birim
region of southern Ghana
cash operating cost - total cash costs for the period less production royalties and production taxes
CIL or carbon-in-leach - an ore processing method involving the use of cyanide where activated carbon which has been added to the
leach tanks is used to absorb gold as it is leached by cyanide
craton - a stable relatively immobile area of the earth’s crust
cut-off grade - when determining economically viable Mineral Reserves, the lowest grade of mineralized material that qualifies as
ore, i.e. that can be mined and processed at a profit
cyanidation - the process of introducing cyanide to ore to recover gold
diamond drilling - rotary drilling using diamond-set or diamond-impregnated bits, to produce a solid continuous core of rock sample
dip - the angle that a structural surface, a bedding or fault plane, makes with the horizontal, measured perpendicular to the strike of the
structure
diorite - a group of intrusive rocks intermediate in composition between acidic and basic, characteristically composed of dark-colored
amphibole, acid plagioclase, pyroxene and sometimes a small amount of quartz.
disseminated - where minerals occur as scattered particles in the rock
doré - unrefined gold bullion bars containing various impurities such as silver, copper and mercury, which will be further refined to
near pure gold
fault - a surface or zone of rock fracture along which there has been displacement
feasibility study - a comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social,
environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final
decision by a financial institution to finance the development of the deposit for mineral production.
formation - a distinct layer of sedimentary rock of similar composition
gabbro - a group of dark-colored basic intrusive igneous rocks (the intrusive equivalent to basalt)
gabbroic - rock masses made up of gabbro and other similar dark-colored basic igneous rock
geochemistry - the study of the distribution and amounts of the chemical elements in minerals, ores, rocks, solids, water, and the
atmosphere
geochemical prospecting - a prospecting technique which measures the content of certain metals in soils and rocks used to define
anomalies for further testing
geophysics - the study of the mechanical, electrical and magnetic properties of the earth’s crust
geophysical surveys - a survey method used primarily in the mining industry as an exploration tool, applying the methods of physics
and engineering to the earth’s surface
geotechnical - the study of ground stability
graben - an elongate, relatively depressed crustal unit or block that is bounded by faults on its long sides
grade - quantity of metal per unit weight of host rock
greenstone - a sequence of usually metamorphosed volcanic-sedimentary rock assemblages
granodiorite - a group of coarse-grained plutonic rocks intermediate in composition between quartz diorite and quartz monzonite
containing quartz, plagioclase, potassium feldspar with biotite and hornblende
granophyric - of or pertaining to granophyre which is an igneous rock containing mainly of crystals of feldspar and quartz that have
crystallized together
heap leach - a mineral processing method involving the crushing and stacking of an ore on an impermeable liner upon which
solutions are sprayed to dissolve metals i.e. gold, copper etc.; the solutions containing the metals are then collected and treated to
recover the metals
host rock - the rock in which a mineral or an ore body may be contained
hydrothermal - the products of the actions of heated water, such as a mineral deposit precipitated from a hot solution
in-situ - in its natural position
laterite - a reddish mixture of clayey iron and aluminum oxides and hydroxides formed by the weathering of basalt under humid,
tropical conditions.
life-of-mine - a term commonly used to refer to the likely term of a mining operation and normally determined by dividing the tonnes
of Mineral Reserve by the annual rate of mining and processing
lithology - the character of the rock described in terms of its structure, color, mineral composition, grain size and arrangement of tits
component parts, all those visible features that in the aggregate impart individuality to the rock
mafic - an adjective describing a silicate mineral or rock that is rich in magnesium and iron. Common mafic rocks include basalt and
gabbro
mapped or geological mapping - the recording of geologic information including rock units and the occurrence of structural features,
and mineral deposits on maps
metavolcanic - a volcanic rock which shows evidence of having been subjected to metamorphism
mineral - a naturally occurring inorganic crystalline material having a definite chemical composition
mineralization - a natural accumulation or concentration in rocks or soil of one or more potentially economic minerals, also the
process by which minerals are introduced or concentrated in a rock
National Instrument 43-101 or NI 43-101 - standards of disclosure for mineral projects prescribed by the Canadian Securities
Administration
non-refractory - ore containing gold that can be satisfactorily recovered by basic gravity concentration or simple cyanidation
outcrop - that part of a geologic formation or structure that appears at the surface of the earth
open pit or open cut - surface mining in which the ore is extracted from a pit or quarry, the geometry of the pit may vary with the
characteristics of the ore body
ore - mineral bearing rock that can be mined and treated profitably under current or immediately foreseeable economic conditions
ore body - a mostly solid and fairly continuous mass of mineralization estimated to be economically mineable
ore grade - the average weight of the valuable metal or mineral contained in a specific weight of ore i.e. grams per tonne of ore
oxide - gold bearing ore which results from the oxidation of near surface sulfide ore
Precambrian - period of geologic time, prior to 700 million years ago
preliminary assessment - a study that includes an economic analysis of the potential viability of Mineral Resources taken at an early
stage of the project prior to the completion of a preliminary feasibility study
preliminary feasibility study and pre-feasibility study - each mean a comprehensive study of the viability of a mineral project that
has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration in the case of an open
pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based
on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation
of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the Mineral
Resource may be classified as a Mineral Reserve
Proterozoic - the more recent time division of the Precambrian; rocks aged between 2,500 million and 550 million years old
put - a financial instrument that provides the right, but not the obligation, to sell a specified number of ounces of gold at a specified
price
pyrite - common sulfide of iron
QA/QC - Quality Assurance/Quality Control is the process of controlling and assuring data quality for assays and other exploration
and mining data
quartz - a mineral composed of silicon dioxide, SiO2 (silica)
RAB (rotary air blast) drilling - relatively inexpensive and quick exploration drilling method returning rock chips from the drill hole
using high pressure air
RC (reverse circulation) drilling - a drilling method using a tri-cone bit, during which rock cuttings are pushed from the bottom of
the drill hole to the surface through an outer tube, by liquid and/or air pressure moving through an inner tube
reef - general term that typically refers to a tabular ore body
refractory - ore containing gold that cannot be satisfactorily recovered by basic gravity concentration or simple cyanidation
rock - indurated naturally occurring mineral matter of various compositions
sampling and analytical variance/precision - an estimate of the total error induced by sampling, sample preparation and analysis
schist - rocks derived from clays and muds which have passed through a series of metamorphic processes involving the production of
shales, slates and phyllites as intermediate steps
sediment - particles transported by water, wind or ice
sedimentary rock - rock formed at the earth’s surface from solid particles, whether mineral or organic, which have been moved from
their position of origin and re-deposited
sericitic - a rock with abundant amounts of sericite, a white fine grained potassium mica occurring as an alteration product of various
aluminosilicate minerals
shear - a form of strain resulting from stresses that cause or tend to cause contiguous parts of a body of rock to slide relatively to each
other in a direction parallel to their plane of contact
shield - a large area of exposed basement rocks often surrounded by younger rocks, e.g. Guiana Shield
stratigraphic or stratigraphically - geology that deals with the origin and succession of strata
strike - the direction or trend that a structural surface, e.g. a bedding or fault plane, takes as it intersects the horizontal
strip - to remove overburden in order to expose ore
sulfide - a mineral including sulfur (S) and iron (Fe) as well as other elements; metallic sulfur-bearing mineral often associated with
gold mineralization
tailings - fine ground wet waste material produced from ore after economically recoverable metals or minerals have been extracted
Tarkwaian - a group of sedimentary rocks of Proterozoic age named after the town of Tarkwa in southern Ghana where they were
found to be gold bearing
tectonic - relating to the forces that produce movement and deformation of the Earth’s crust
tonne - metric tonne, equal to 1,000 kilograms or 2,204.6 pounds
total operating cost - Cost of sales for the period after adjusting for inventory write-offs and operations-related foreign currency
(gains)/losses
total cash cost - total operating costs for the period less mining related depreciation and amortization and accretion of asset retirement
obligations costs
transition ore - is an ore zone lying between the oxide ore and the sulfide ore; ore material that is partially weathered and oxidized
vein - a thin, sheet-like crosscutting body of hydrothermal mineralization, principally quartz
volcanics - those originally molten rocks, generally fine grained, that have reached or nearly reached the earth’s surface before
solidifying
volcano-sedimentary - rocks composed of materials of both volcanic and sedimentary origin
wall rock - the rock adjacent to a vein
weathering - near surface alteration and oxidation of minerals and rocks by exposure to the atmosphere or ground water
wire frame - a mesh of triangles used to define a volume in generating computerized geological models
PART I
BUSINESS
Item 1.
OVERVIEW OF GOLDEN STAR
We are a Canadian federally incorporated international gold mining and exploration company producing gold in Ghana, West Africa.
We also conduct gold exploration in West Africa and in South America. Golden Star Resources Ltd. was established under the
Canada Business Corporations Act on May 15, 1992 as a result of the amalgamation of South American Goldfields Inc., a corporation
incorporated under the federal laws of Canada, and Golden Star Resources Ltd., a corporation originally incorporated under the
provisions of the Alberta Business Corporations Act on March 7, 1984 as Southern Star Resources Ltd. Our principal office is located
at 10901 West Toller Drive, Suite 300, Littleton, Colorado 80127, and our registered and records offices are located at 66 Wellington
St. W, suite 3700, Box 20, Toronto Dominion Bank Tower - Toronto Dominion Centre, Toronto, ON M5K 1N6. Our fiscal year ends
on December 31.
We own controlling interests in several gold properties in southern Ghana:
•
•
Through a 90% owned subsidiary, Golden Star Bogoso/Prestea Limited (“GSBPL”), we own and operate the
Bogoso/Prestea gold mining and processing operations (“Bogoso/Prestea”) located near the town of Bogoso, Ghana. In
July 2007, we commissioned a nominal 3.5 million tonnes per year processing facility at Bogoso that uses bio-oxidation
technology to treat refractory sulfide ore. In addition Bogoso/Prestea has a carbon-in-leach processing facility which we
expect to use to treat oxide ores as they are available. Bogoso/Prestea produced and sold 120,216 ounces of gold in 2007
and 170,499 ounces of gold in 2008.
Through another 90% owned subsidiary, Golden Star (Wassa) Limited (“GSWL”), we own and operate the Wassa open-
pit gold mine and carbon-in-leach processing plant (“Wassa”), located approximately 35 kilometers east of
Bogoso/Prestea. The design capacity of the carbon-in-leach processing plant at Wassa is nominally 3.0 million tonnes per
annum but varies depending on the ratio of hard and soft ore. Wassa produced and sold 126,062 ounces of gold in 2007
and 125,427 ounces of gold in 2008. GSWL also owns the Hwini-Butre and Benso concessions (“HBB properties”) in
southwest Ghana. We spent approximately $40 million on the Benso property during 2008 developing the Benso mine
which began shipping ore to Wassa in the third quarter of 2008. An extension of the haul road from Benso to Hwini-Butre
commenced in the fourth quarter of 2008 and is expected to be commissioned during the second quarter of 2009. The
Hwini-Butre and Benso concessions are located approximately 80 and 50 kilometers, respectively, by road south of
Wassa.
We also hold interests in several gold exploration projects in Ghana and elsewhere in West Africa including Sierra Leone, Burkina
Faso, Niger and Côte d’Ivoire, and hold and manage exploration properties in Suriname, Brazil and French Guiana in South America.
GOLD SALES AND PRODUCTION
Ghana has been a significant gold producing country for over 100 years with AngloGold Ashanti’s Obuasi mine and our inactive
underground mine at Prestea historically being the two major producers. Several other areas in Ghana have also produced significant
amounts of gold. Annual gold production in Ghana has exceeded two million ounces in recent years.
Currently all our gold production is shipped to a South African gold refinery in accordance with a long-term gold sales contract. Our
gold is sold in the form of doré bars which average approximately 90% gold by weight with the remaining portion being primarily
silver. The sales price is based on the London P.M. fix on the day of shipment to the refinery.
GOLD PRICE HISTORY
The price of gold is volatile and is affected by numerous factors all of which are beyond our control such as the sale or purchase of
gold by various central banks and financial institutions, inflation, recession, fluctuation in the relative values of the US dollar and
foreign currencies, changes in global and regional gold demand, and the political and economic conditions of major gold-producing
countries throughout the world.
The following table presents the high, low and average afternoon fixed prices for gold per ounce on the London Bullion Market over
the past ten years:
Year
1999 ................................................................................................................................
2000 ................................................................................................................................
2001 ................................................................................................................................
2002 ................................................................................................................................
2003 ................................................................................................................................
2004 ................................................................................................................................
2005 ................................................................................................................................
2006 ................................................................................................................................
2007 ................................................................................................................................
2008 ................................................................................................................................
To February 24, 2009................................................................................................
High
326
313
293
349
416
454
537
725
841
1,011
990
Low
253
264
256
278
320
375
411
525
608
713
813
Data Source: www.kitco.com
Average
Average Price Received
by Golden Star
279
279
271
310
363
410
445
603
695
872
894
293
280
271
311
364
410
446
607
713
870
The following diagram depicts the organizational structure of Golden Star and its significant subsidiaries:
BUSINESS STRATEGY AND DEVELOPMENT
Our business and development strategy has been focused primarily on the acquisition of producing and development-stage gold
properties in Ghana and on the exploration, development and operation of these properties.
In line with our business strategy, we acquired Bogoso in 1999 and have operated a nominal 1.5 million tonne per year carbon-in-
leach (“CIL”) processing plant most of the time since then to process oxide and other non-refractory ores (“Bogoso oxide plant”). In
2001, we acquired Prestea and mined surface deposits at Prestea from late 2001 to late 2006. In late 2002, we acquired Wassa, and
constructed a new nominal 3.0 million tonne per annum CIL processing plant at Wassa, which began commercial operation in April
2005. In July 2007, we completed construction and development of a new nominal 3.5 million tonnes per annum processing facility at
Bogoso/Prestea that uses bio-oxidation technology to treat refractory sulfide ore (“Bogoso sulfide plant”).
In late 2005, we acquired the HBB properties consisting of the Benso and Hwini-Butre properties. Development activities were
initiated in late 2007 at Benso, and in the third quarter of 2008, Benso began trucking ore to the Wassa plant for processing.
Our overall objective is to grow our business to become a mid-tier gold producer with an annualized production rate in excess of
500,000 ounces. We continue to evaluate potential acquisition and merger opportunities that could further increase our annual gold
production. However, we presently have no agreement or understanding with respect to any specific potential transaction.
In addition to our gold mining and development activities, we actively explore for gold in West Africa and South America, investing
approximately $15.8 million on such activities during 2008 and $13.9 million in 2007. We are conducting regional reconnaissance
projects in Ghana, Cote d’Ivoire and Sierra Leone and have drilled more advanced targets in Ghana, Niger and Burkina Faso. We are
also evaluating a property in French Guiana and participating in a joint venture in Suriname.
See Item 2 – “Description of Properties” for additional details on our assets
GOLD PRODUCTION AND UNIT COSTS
The following table shows historical and projected gold production and cash operating costs.
Production and Cost Per Ounce(1) (2)
BOGOSO/PRESTEA (Sulfide and Oxide Plants)
Gold Sales (thousands of ounces) ................................................................................................ 103.8
Cash Operating Cost ($/oz).................................................................................................................
412
WASSA (Wassa and HBB)
Production (thousands of ounces) ................................................................................................
Cash Operating Cost ($/oz).................................................................................................................
CONSOLIDATED
Consolidated Total Sales (thousands of ounces).................................................................................
Consolidated Cash Operating Cost ($/oz)...........................................................................................
201.4
442
97.6
475
2006
2007
2008
2009
Projected
120.2
766
170.5
837
126.1
444
125.4
554
246.3
602
295.9
717
200.0
650
200.0
450
400.0
550
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for definitions of cash
operating cost per ounce.
(2) Gold production is shown on a 100% basis, which represents our current beneficial interest in gold production and revenues.
The Government of Ghana, which has a 10% carried interest in Bogoso/Prestea, Wassa, and the HBB Properties would receive
10% of any dividends distributed from Bogoso/Prestea and Wassa once all capital costs have been repaid.
(3) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion of increasing
trends in gold sales.
MINERAL RESERVES
Our Proven and Probable Mineral Reserves are estimated in conformance with definitions set out in NI 43-101. We have filed
Technical Reports regarding the initial disclosure of Mineral Reserves and Mineral Resources for Bogoso / Prestea and Wassa/ HBB
as required by NI 43-101. The Proven and Probable Mineral Reserves are those ore tonnages contained within economically optimized
pits, configured using current and predicted mining and processing methods and related operating costs and performance parameters.
We believe that our Mineral Reserves are estimated on a basis consistent with the definition of proven and probable reserves
prescribed for use in the US by the US Securities and Exchange Commission and set forth in SEC Industry Guide 7. See our “Glossary
of Terms.”
In estimating Mineral Reserves, we first design an economically optimized pit based on all operating costs, including the costs to
mine. Since all material lying within the optimized pit will be mined, the cut-off grade used in determining our Mineral Reserves is
estimated on the basis of material that, having been mined, is economic to transport and process without regard to primary mining
costs (i.e. mining costs that were appropriately applied at the economic optimization stage).
The QA/QC controls program used in connection with the estimation of our Mineral Reserves consists of regular insertion and
analysis of blanks and standards to monitor laboratory performance. Blanks are used to check for contamination. Standards are used to
check for grade-dependence biases.
The following table summarizes our estimated Proven and Probable Mineral Reserves as of December 31, 2008 and December 31,
2007:
As at December 31, 2008
Gold Grade
(g/t)
Tonnes
(millions)
Ounces
(millions)
Tonnes
(millions)
As at December 31, 2007
Gold Grade
(g/t)
Ounces
(millions)
PROVEN AND PROBABLE MINERAL RESERVES
Property Mineral Reserve Category
Bogoso/Prestea(1)
Proven Mineral Reserves
Non-refractory................................................................
Refractory................................................................
1.2
9.6
Total Proven ................................................................
10.8
Probable Mineral Reserves
Non-refractory................................................................
Refractory................................................................
3.9
9.1
Total Probable ................................................................
13.0
Total Proven and Probable
Non-refractory................................................................
Refractory................................................................
5.1
18.7
Total Bogoso/Prestea Proven and Probable ................................
Wassa(2)
Proven Mineral Reserves
23.8
Non-refractory................................................................
0.4
Probable Mineral Reserves
Non-refractory................................................................
11.3
Total Wassa Proven & Probable ................................
Totals
Proven Mineral Reserves
11.7
Non-refractory................................................................
Refractory................................................................
1.6
9.6
Total Proven ................................................................
11.2
Probable Mineral Reserves
Non-refractory................................................................
Refractory................................................................
15.2
9.1
Total Probable ................................................................
24.3
Total Proven and Probable
Non-refractory................................................................
Refractory................................................................
16.8
18.7
Total Proven and Probable............................................................
35.5
1.89
3.34
3.18
2.90
3.07
3.02
2.66
3.21
3.09
1.01
2.47
2.42
1.68
3.34
3.10
2.58
3.07
2.76
2.49
3.21
2.87
0.08
1.03
1.11
0.36
0.90
1.26
0.43
1.93
2.36
0.01
0.90
0.91
0.09
1.03
1.12
1.26
0.90
2.16
1.35
1.93
3.28
0.5
14.8
15.3
7.3
22.1
29.4
7.8
36.9
44.8
0.7
16.9
17.6
1.2
14.8
16.1
24.2
22.1
46.3
25.4
36.9
62.3
2.10
2.89
2.86
2.59
2.66
2.64
2.55
2.75
2.72
0.99
1.82
1.79
1.45
2.89
2.78
2.06
2.66
2.35
2.03
2.75
2.46
0.03
1.38
1.41
0.61
1.89
2.50
0.64
3.27
3.91
0.02
0.99
1.01
0.06
1.38
1.44
1.60
1.89
3.49
1.66
3.27
4.93
Notes to the Mineral Reserve Statement:
(1) The stated Mineral Reserve for Bogoso/Prestea includes Prestea South, Pampe and Mampon.
(2) The stated Mineral Reserve for Wassa includes the Hwini-Butre and Benso properties.
(3) The stated Mineral Reserves have been prepared in accordance with Canada’s National Instrument 43-101 Standards of
Disclosure for Mineral Projects and are classified in accordance with the Canadian Institute of Mining, Metallurgy and
Petroleum’s “CIM Definition Standards – For Mineral Resources and Mineral Reserves”. Mineral Reserves are equivalent to
Proven and Probable Reserves as defined by the SEC Industry Guide 7. Mineral Reserve estimates reflect the Company’s
reasonable expectation that all necessary permits and approvals will be obtained and maintained.
(4) The 2008 and 2007 Mineral Reserves have been prepared under the supervision of Mr. Peter Bourke, P.Eng., Vice President
Technical Services for the Company. Mr. Bourke is a “Qualified Person” as defined by Canada’s National Instrument 43-101.
(5) The Mineral Reserves at December 31, 2008 were estimated using a gold price of $700 per ounce, which is approximately equal
to the three year average gold price. At December 31, 2007 Mineral Reserves were estimated using a gold price of $560 per
ounce.
(6) The terms “non-refractory” and “refractory” refer to the metallurgical characteristics of the ore and are defined in the Glossary
of Terms. We plan to process the refractory ore in our sulfide bio-oxidation plant at Bogoso and to process the non-refractory
ore using our more traditional gravity, flotation and/or cyanidation techniques.
(7) Optimized pit parameters are based on historical and projected operating costs at Bogoso/Prestea, Wassa and Hwini-Butre and
Benso. Metallurgical recoveries are based on historical performance or estimated from test work and typically range between
80% to 95% for non-refractory ores and between 70% to 85% for refractory ores. Pit designs are based on geotechnical criteria
established by external consultants. Mining dilution and mining recovery vary by deposit and have been applied in estimating
the Mineral Reserves. A government royalty of 3% is allowed as are other applicable royalties.
(8) Mineral Reserves are expressed on a 100% basis. Our share of the Mineral Reserves is subject to the Government of Ghana’s
10% carried interest which entitles it to a 10% dividend once our capital costs have been recovered.
(9) Numbers may not add due to rounding.
Stockpiled Ores
Stockpiled ores are included in the Mineral Reserves for both Bogoso/Prestea and Wassa. Details of the proven stockpiles included in
the Mineral Reserves at year-end 2008 and 2007 are summarized in the table below.
PROVEN STOCKPILES INCLUDED IN MINERAL RESERVES
As at December 31, 2008
Gold Grade
(g/t)
Tonnes
(millions)
Ounces
(millions)
Tonnes
(millions)
As at December 31, 2007
Gold Grade
(g/t)
Ounces
(millions)
Property Mineral Reserve Category
Bogoso/Prestea
Proven Stockpiles
Non-refractory................................................................
Refractory................................................................
0.0
0.1
Total Proven Stockpiles ................................................................
0.1
Wassa
Proven Stockpiles
Non-refractory................................................................
0.3
Totals
Proven Stockpiles
Non-refractory................................................................
Refractory................................................................
0.4
0.1
Total Proven ................................................................
0.5
2.32
2.32
2.32
0.00
0.01
0.01
0.98
0.01
1.10
2.32
1.36
0.01
0.01
0.02
0.1
0.9
1.0
0.5
0.6
0.9
1.5
2.49
2.72
2.69
0.01
0.08
0.09
0.85
0.01
1.18
2.72
2.09
0.02
0.08
0.10
Reconciliation of Mineral Reserves as shown under NI 43-101 and under SEC Industry Guide 7
Since we report our Mineral Reserves to both NI 43-101 and SEC Industry Guide 7 standards, it is possible for our Mineral Reserve
figures to vary between the two. Where such a variance occurs it will arise from the differing requirements for reporting Mineral
Reserves. For example, NI 43-101 has a minimum requirement that Mineral Reserves be supported by a pre-feasibility study, whereas
SEC Industry Guide 7 requires support from a detailed feasibility study that demonstrates that economic extraction is justified.
For the Mineral Reserves at December 31, 2008 and 2007, there is no difference between the Mineral Reserves as disclosed under NI
43-101 and those disclosed under SEC Industry Guide 7, and therefore no reconciliation is provided.
Reconciliation of Proven and Probable Mineral Reserves - December 31, 2007 to December 31, 2008
Reconciliation
Opening Mineral Reserves at December 31, 2007
Gold Price Increase(1) ................................................................
Exploration Changes(2) ................................................................
Mining Depletion(3) ..................................................................................
Engineering (4) ..........................................................................................
Closing Mineral Reserves at December 31, 2008 (5) ................................
Tonnes
(millions)
Contained Ounces
(millions)
Tonnes
(% of Opening)
4.93
1.54
(0.10)
(0.39)
(2.70)
3.28
100
50
(2)
(9)
(83)
57
Ounces
(% of Opening)
100
31
(2)
(8)
(55)
67
62.3
31.2
(1.0)
(5.5)
(51.5)
35.5
Notes to the reconciliation of Mineral Reserves:
(1) Gold Price Increase represents changes resulting from an increase in gold price used in the Mineral Reserve estimates from $560
per ounce in 2007 to $700 per ounce in 2008.
(2) Exploration Changes include changes due to geological modeling, data interpretation and resource block modeling methodology
as well as due to exploration discovery of new mineralization.
(3) Mining Depletion represents 2007 Mineral Reserve mined and processed in 2008 before considering recovery losses and
therefore does not correspond with 2008 actual gold production.
(4) Engineering includes changes as a result of engineering facts such as changes in operating costs, mining dilution and recovery
assumptions, metallurgical recoveries, pit slope angles and other mine design and permitting considerations.
(5) Numbers may not add due to rounding.
NON-RESERVES - MEASURED AND INDICATED MINERAL RESOURCES
Cautionary Note to US Investors concerning estimates of Measured and Indicated Mineral Resources
This section uses the terms “Measured Mineral Resources” and “Indicated Mineral Resources.” We advise US investors that while
those terms are recognized and required by Canadian regulations, the US Securities and Exchange Commission does not recognize
them. US investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be
converted into Mineral Reserves.
Our Measured and Indicated Mineral Resources which are reported in this Form 10-K do not include that part of our Mineral
Resources that have been converted to Proven and Probable Mineral Reserves as shown above, and have been estimated in compliance
with definitions set out in NI 43-101. Golden Star Resources has filed Technical Reports regarding the initial disclosure of Mineral
Reserves and Mineral Resources for Bogoso/Prestea, Wassa and the HBB properties as required by NI 43-101 regulations. See our
“Glossary of Terms.”
Except as otherwise provided, the total Measured and Indicated Mineral Resources for all properties have been estimated at an
economic cut-off grade based on a gold price of $700 per ounce for December 31, 2008 and $640 per ounce for December 31, 2007
and on economic parameters deemed realistic. The economic cut-off grades for Mineral Resources are higher than those for Mineral
Reserves and are indicative of the fact that the Mineral Resource estimates include material that may become economic under more
favorable conditions including increases in gold price.
The following table summarizes our estimated non-reserves - Measured and Indicated Mineral Resources as of December 31, 2008 as
compared to the totals for December 31, 2007:
Measured
Indicated
Tonnes
(millions)
Property
Bogoso/Prestea(1)
5.4
Prestea Underground.......................................................................................
—
Wassa ................................................................................................
—
Benso ................................................................................................
—
Hwini-Butre (9)...............................................................................................
—
Goulagou(8) ................................................................................................
—
Total 2008
Total 2007 ................................................................................................
5.4
3.1
Gold
Grade
(g/t)
2.24
—
—
—
—
—
2.24
1.75
Tonnes
(millions)
11.9
1.4
3.9
0.8
1.0
2.7
Gold
Grade
(g/t)
2.54
13.92
0.89
2.24
3.43
1.75
Measured &
Indicated
Tonnes
(millions)
17.3
1.4
3.9
0.8
1.0
2.7
Gold
Grade
(g/t)
2.44
13.92
0.89
2.24
3.43
1.75
21.6
20.0
2.89
2.72
27.0
23.2
2.76
2.59
Notes to Non-Reserves - Measured and Indicated Mineral Resources Table:
(1) The Mineral Resources for Bogoso/Prestea include Pampe and Mampon.
(2) The Mineral Resources were estimated in accordance with the definitions and requirements of Canada’s National Instrument 43-
101. The Mineral Resources are equivalent to Mineralized Material as defined by the SEC Industry Guide 7.
(3) The Mineral Resources, other than for Goulagou (see Note 8), were estimated using optimized pit shells at a gold price of $800
per ounce from which the Mineral Reserves have been subtracted. Other than gold price, the same optimized pit shell
parameters and modifying factors used to determine the Mineral Reserves were used to determine the Mineral Resources. The
Prestea Underground resource was estimated using an $800 per ounce gold price and operating cost estimates. In 2007, we used
a gold price of $640 per ounce for the optimized shell.
(4) The Mineral Resources are not included in and are in addition to the Mineral Reserves described above.
(5) The Qualified Person for the estimation of the Mineral Resources is S. Mitchel Wasel, Golden Star Resources Vice President of
Exploration.
(6) Numbers may not add due to rounding.
(7) Mineral Resources are shown on a 100% basis. The Mineral Resources shown above, other than for Goulagou, are subject to the
Government of Ghana’s 10% carried interest which entitles it to a 10% dividend once capital costs have been recovered, in the
case of Bogoso/Prestea, Wassa and Hwini-Butre and Benso. The Mineral Resources at Prestea Underground are subject to the
Government of Ghana’s 19% minority interest, with Golden Star having an 81% beneficial interest. Goulagou is 10% owned by
a third party.
(8) The Mineral Resources for Goulagou were estimated using optimized pit shells at a gold price of $560. Pit optimization
parameters for the Goulagou Mineral Resources were estimated based on feasibility studies on other similar gold deposits in
Burkina Faso, Golden Star’s experience in West Africa, and from limited metallurgical test work on the Goulagou ores. Heap
leach processing was the assumed processing option for this deposit.
(9) The Hwini Butre Indicated Mineral Resource includes 0.2 million tonnes at a grade of 5.31 g/t which occurs below the $800 pit
shells and which we believe may be exploitable by under ground mining.
NON-RESERVES - INFERRED MINERAL RESOURCES
Cautionary Note to US Investors concerning estimates of Inferred Mineral Resources
This section uses the term “Inferred Mineral Resources.” We advise US investors that while this term is recognized and required by NI
43-101, the US Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of
uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any
part of Inferred Mineral Resources will ever be upgraded to a higher category. In accordance with Canadian rules, estimates of
Inferred Mineral Resources cannot form the basis of feasibility or other economic studies. US investors are cautioned not to assume
that part or all of the Inferred Mineral Resource exists, or is economically or legally mineable.
Our Inferred Mineral Resources have been estimated in compliance with definitions defined by NI 43-101. Golden Star Resources has
filed Technical Reports regarding the initial disclosure of Mineral Reserves and Mineral Resources for Bogoso/Prestea, Wassa and the
HBB properties as required by NI 43-101. See our “Glossary of Terms.”
The total Inferred Mineral Resources for all our open pit deposits are those ore tonnages contained within economically optimized
pits, configured using current and predicted mining and processing methods and related operating costs and performance parameters.
Except as otherwise indicated, the Inferred Mineral Resources for all properties have been estimated at economic cut-off grades based
on gold prices of $800 per ounce and $640 per ounce as of December 31, 2008 and December 31, 2007, respectively, and economic
parameters deemed realistic.
The following table summarizes estimated non-reserves – Inferred Mineral Resources as of December 31, 2008 as compared to the
total for December 31, 2007:
Property
Bogoso/Prestea(1) ................................................................................................................................
Prestea Underground ................................................................................................................................
Benso........................................................................................................................................................
Hwini-Butre (10) ................................................................................................................................
Chichiwelli Manso ................................................................................................................................
Goulagou(8) .............................................................................................................................................
Paul Isnard(9) ...........................................................................................................................................
Total 2008
Total 2007 ................................................................................................................................................
Tonnes
(millions)
2.5
5.0
0.4
0.5
1.0
0.5
9.2
19.1
20.2
Gold
Grade
(g/t)
3.43
7.44
4.04
4.53
2.12
1.02
2.51
3.94
3.68
Notes to Non-Reserves - Inferred Mineral Resources Table
(1) The Inferred Mineral Resources for Bogoso/Prestea incorporates Pampe and Mampon.
(2) The Inferred Mineral Resources were estimated in accordance with the definitions and requirements of Canada’s National
Instrument 43-101. Inferred Mineral Resources are not recognized by the United States Securities and Exchange Commission.
(3) The Inferred Mineral Resources, other than for, Goulagou and Paul Isnard, were estimated using an optimized pit shell at a gold
price of $800 per ounce from which the Mineral Reserves have been subtracted. Other than gold price, the same optimized pit
shell parameters and modifying factors used to determine the Mineral Reserves were used to determine the Mineral Resources.
For Goulagou and Paul Isnard optimized pit shells at a gold price of $560 and $640 were respectively used. In 2007, we used a
gold price of $640 per ounce for the optimized shell. The Prestea Underground resource was estimated using an $800 per ounce
gold price and operating cost estimates.
(4) The Inferred Mineral Resources are not included in and are in addition to the Mineral Reserves described above.
(5) The Qualified Person for the estimation of the Inferred Mineral Resources is S. Mitchel Wasel, Golden Star Resources Vice
President of Exploration.
(6) Numbers may not add due to rounding.
(7)
Inferred Mineral Resources are shown on a 100% basis. The Inferred Mineral Resources shown are subject to the Government
of Ghana’s 10% carried interest which entitles it to a 10% dividend once our capital costs have been recovered, in the case of
Bogoso/Prestea, Wassa, Hwini-Butre and Benso. The Inferred Mineral Resources at Prestea Underground, are subject to the
Government of Ghana’s 19% minority interest, with Golden Star currently having an 81% beneficial interest.
(8) Pit optimization parameters for the Goulagou Inferred Mineral Resources were estimated based on feasibility studies on other
similar gold deposits in Burkina Faso, Golden Star’s experience in West Africa, and from limited metallurgical test work on the
Goulagou ores. Heap leach processing was the assumed processing option for this deposit.
(9) This property is held in trust for Golden Star. See Note 15 to our financial statements in this December 31, 2008 Form 10-K.
(10) The Hwini Butre Inferred Mineral Resource includes 0.2 million tonnes at a grade of 5.08 g/t which occurs below the $800 pit
shells and which we believe may be exploitable by under ground mining.
EMPLOYEES
As of December 31, 2008, Golden Star, including our majority-owned subsidiaries, had approximately 2,400 full time employees and
approximately 400 contract employees, for a total of 2,800, a 30% increase from the approximately 2,150 people employed at the end
of 2007. The 2008 total includes 18 employees at our principal office in Littleton, Colorado and 7 exploration personnel in South
America.
CUSTOMERS
Currently all of our gold production is shipped to a South African gold refinery in accordance with a long-term gold sales contract.
The refiner arranges for sale of the gold on the day it is shipped from the mine site and we receive payment for gold sold
approximately three working days or less after the gold leaves the mine site. The global gold market is competitive with numerous
banks and refineries willing to buy gold on short notice. Therefore we believe that the loss of our current customers would not
materially delay or disrupt revenues.
COMPETITION
Our competitive position depends upon our ability to successfully and economically explore, acquire and develop new and existing
gold properties. Factors that allow gold producers to remain competitive in the market over the long term include the quality and size
of ore bodies, cost of operation, and the acquisition and retention of qualified employees. We compete with other mining companies
and other natural mineral resource companies in the acquisition, exploration, financing and development of new mineral properties.
Many of these companies are larger and better capitalized than we are. There is significant competition for the limited number of gold
acquisition and exploration opportunities.
We also compete with other mining companies for skilled mining engineers, mine and processing plant operators and mechanics,
geologists, geophysicists and other technical personnel.
SEASONALITY
All of our operations are in tropical climates that experience annual rainy seasons. Ore output from our surface mining operations can
be reduced during wet periods but mine plans are formulated to compensate for the periodic decreases and typically mining operations
are not materially affected by rainy seasons. Exploration activities in Ghana and in the Guiana Shield in South America are generally
timed to avoid the rainy periods to ease transportation logistics associated with wet roads and swollen rivers. In 2006 and early 2007,
decreases in rainfall in the Volta River catchment basin resulted in reduced electric power availability from a hydroelectric power
plant that produces a major portion of Ghana’s electric power. During 2008 rainfall in Ghana was within the normal range and
adequate power was available.
AVAILABLE INFORMATION
We make available, free of charge, on or through our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our
Internet address is www.gsr.com. Our Internet website and the information contained therein or connected thereto are not intended to
be, and are not incorporated into this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
RISK FACTORS
You should consider the following discussion of risks in addition to the other information contained in or included by reference in this
Form 10-K. In addition to historical information, the information in this Form 10-K contains “forward-looking” statements about our
future business and performance. Our actual operating results and financial performance may be very different from what we expect
as of the date of this Form 10-K. The risks below address material factors that may affect our future operating results and financial
performance.
Financial Risks
A substantial or prolonged decline in gold prices would have a material adverse effect on us.
The price of our common shares, our financial results and our exploration, development and mining activities have previously been,
and would in the future be, significantly adversely affected by a substantial or prolonged decline in the price of gold. The price of gold
is volatile and is affected by numerous factors beyond our control such as the sale or purchase of gold by various central banks and
financial institutions, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and
regional demand, and the political and economic conditions of major gold-producing countries throughout the world. Any drop in the
price of gold adversely impacts our revenues, profits and cash flows. In particular, a sustained low gold price could:
•
•
•
•
•
cause suspension of our mining operations at Bogoso/Prestea, Wassa and Benso if these operations become uneconomic at
the then-prevailing gold price, thus further reducing revenues;
cause us to be unable to fulfill our obligations under agreements with our partners or under our permits and licenses which
could cause us to lose our interests in, or be forced to sell, some of our properties;
cause us to be unable to fulfill our debt payment obligations;
halt or delay the development of new projects; and
reduce funds available for exploration, with the result that depleted Mineral Reserves are not replaced.
Furthermore, the need to reassess the feasibility of any of our projects because of declining gold prices could cause substantial delays
or could interrupt operations until a reassessment could be completed. Mineral Reserve estimations and life-of-mine plans using
significantly lower gold prices could result in reduced estimates of Mineral Reserves and non-reserve Mineral Resources and in
material write-downs of our investment in mining properties and increased amortization, reclamation and closure charges.
We may incur substantial losses in the future that could make financing our operations and business strategy more difficult.
We experienced a net loss of $120.1 million in 2008 and have experienced net losses in other prior fiscal years. Numerous factors,
including declining gold prices, lower than expected ore grades or higher than expected operating costs, and impairment write-offs of
mine property and/or exploration property costs, could cause us to continue to be unprofitable in the future. Future operating losses
could make financing our operations and our business strategy, including pursuit of the growth opportunities anticipated at the HBB
properties, or raising additional capital, difficult or impossible and could materially and adversely affect our operating results and
financial condition.
Our obligations could strain our financial position and impede our business strategy.
We had total consolidated debt and liabilities as of December 31, 2008 of $266.1 million, including $0.6 million payable to banks;
$31.1 million in equipment financing loans; $93.7 million ($125.0 million including the loan’s equity portion) in convertible senior
unsecured debentures maturing November 30, 2012; $74.2 million of current trade payables, accrued current and other liabilities;
$33.1 million of future taxes; $1.7 million of derivative liabilities and a $31.7 million accrual for environmental rehabilitation
liabilities. Our indebtedness and other liabilities may increase as a result of general corporate activities. These liabilities could have
important consequences, including the following:
•
•
•
•
•
increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, exploration costs
and other general corporate requirements;
requiring us to dedicate a significant portion of our cash flow from operations to make debt service payments, which
would reduce our ability to fund working capital, capital expenditures, exploration and other general corporate
requirements;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and
placing us at a disadvantage when compared to our competitors that have less debt relative to their market capitalization.
Our estimates of Mineral Reserves and non-reserves could be inaccurate, which could cause production and costs to differ
from estimates.
There are numerous uncertainties inherent in estimating Proven and Probable Mineral Reserves and non-reserve Measured, Indicated
and Inferred Mineral Resources, including many factors beyond our control. The accuracy of estimates of Mineral Reserves and non-
reserves is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and
geological interpretation, which could prove to be unreliable. These estimates of Mineral Reserves and non-reserves may not be
accurate, and Mineral Reserves and non-reserves may not be able to be mined or processed profitably.
Fluctuation in gold prices, results of drilling, metallurgical testing, changes in operating costs, production, and the evaluation of mine
plans subsequent to the date of any estimate could require revision of the estimates. The volume and grade of Mineral Reserves mined
and processed and recovery rates might not be the same as currently anticipated. Any material reductions in estimates of our Mineral
Reserves and non-reserves, or of our ability to extract these Mineral Reserves and non-reserves, could have a material adverse effect
on our results of operations and financial condition.
We currently have only two sources of operational cash flows, which could be insufficient by themselves to fund our
continuing exploration and development activities.
While we have received significant infusions of cash from sales of equity and debt, our only current significant internal sources of
funds are operational cash flows from Bogoso/Prestea and Wassa/HBB. The anticipated continuing exploration and development of
our properties are expected to require significant expenditures over the next several years as we continue to focus on development of
the HBB properties and Prestea South and other deposits at Bogoso. Although we expect sufficient internal cash flow to cover all of
these projects, such expenditures may exceed free cash flows generated by Bogoso/Prestea and Wassa/HBB in future years and
therefore we may require additional external debt or equity financing. Our ability to raise significant new capital will be a function of
macroeconomic conditions, future gold prices, our operational performance and our then current cash flow and debt position, among
other factors. In light of the current limited global availability of credit, we may not be able to obtain adequate financing on acceptable
terms or at all, which could cause us to delay or indefinitely postpone further exploration and development of our properties. As a
result, we could lose our interest in, or could be forced to sell, some of our properties.
We are subject to fluctuations in currency exchange rates, which could materially adversely affect our financial position.
Our revenues are in United States dollars, and we maintain most of our working capital in United States dollars or United States
dollar-denominated securities. We convert our United States funds to foreign currencies as certain payment obligations become due.
Accordingly, we are subject to fluctuations in the rates of currency exchange between the United States dollar and these foreign
currencies, and these fluctuations could materially affect our financial position and results of operations. A significant portion of the
operating costs at Bogoso/Prestea and Wassa/HBB is based on the Ghanaian currency, the Cedi. We are required to convert into Cedis
20% of the foreign exchange proceeds that we receive from selling gold, but the Government of Ghana could require us to convert a
higher percentage of gold sales proceeds into Cedis in the future. In addition, we currently have future obligations that are payable in
South African Rand and Euros, and receivables collectible in Euros. We obtain construction and other services and materials and
supplies from providers in South Africa and other countries. The costs of goods and services could increase or decrease due to changes
in the value of the United States dollar or the Cedi, Euros, the South African Rand or other currencies. Consequently, operation and
development of our properties could be more costly than anticipated.
In the past, we have entered into forward purchase contracts for South African Rand and Australian dollars to hedge expected
purchase of capital assets in South Africa and Australia. As of February 24, 2009 we had no currency-related derivatives.
Our hedging activities might be unsuccessful and incur losses.
During the third and fourth quarters of 2008, we entered into gold forward price contracts in response to a significant increase in
recent gold price volatility. All of these contracts had terms of 180 days or less. All of the contracts entered into in the third quarter
expired by December 31, 2008. All of the contracts entered into during the fourth quarter of 2008 will expire by March 31, 2009.
These hedges and any further hedging activities might not protect adequately against declines in the price of gold. In addition,
although a hedging program could protect us from a decline in the price of gold; it might also prevent us from benefiting fully from
price increases. For example, as part of a hedging program, we could be obligated to sell gold at a price lower than the then-current
market price.
Risks inherent in acquisitions that we might undertake could adversely affect our current business and financial condition and
our growth.
We plan to continue to pursue the acquisition of producing, development and advanced stage exploration properties and companies.
The search for attractive acquisition opportunities and the completion of suitable transactions are time consuming and expensive,
divert management attention from our existing business and may be unsuccessful. Success in our acquisition activities depends on our
ability to complete acquisitions on acceptable terms and integrate the acquired operations successfully with our operations. Any
acquisition would be accompanied by risks. For example, there may be a significant change in commodity prices after we have
committed to complete a transaction and established the purchase price or exchange ratio, a material ore body may prove to be below
expectations or the acquired business or assets may have unknown liabilities which may be significant. We may lose the services of
our key employees or the key employees of any business we acquire or have difficulty integrating operations and personnel. The
integration of an acquired business or assets may disrupt our ongoing business and our relationships with employees, suppliers and
contractors. Any one or more of these factors or other risks could cause us not to realize the anticipated benefits of an acquisition of
properties or companies, and could have a material adverse effect on our current business and financial condition and on our ability to
grow.
We are subject to litigation risks.
All industries, including the mining industry, are subject to legal claims, with and without merit. We are currently involved in
litigation relating to crop compensation, transfer of ownership of an exploration project and to the validity of various concession
contracts and settlements related to the Hwini-Butre concession. We believe these actions are frivolous and entirely without merit, and
we are vigorously defending against these action on numerous grounds. We are also involved in various routine legal proceedings
incidental to our business. Defense and settlement costs can be substantial, even with respect to claims that have no merit. Due to the
inherent uncertainty of the litigation process, the resolution of any particular legal proceeding could have a material effect on our
future financial position and results of operations.
Operational Risks
We are subject to a number of operational events that can delay production or result in liability to us.
Our activities are subject to a number of risks and hazards including:
•
power shortages;
mechanical and electrical equipment failures;
parts availability;
unexpected changes in ore grades
unexpected changes in ore chemistry and gold recoverability
environmental hazards;
discharge of pollutants or hazardous chemicals;
industrial accidents;
labor disputes and shortages;
supply and shipping problems and delays;
shortage of equipment and contractor availability;
unusual or unexpected geological or operating conditions;
cave-ins of underground workings;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
slope failures and failure of pit walls or dams;
fire;
marine and transit damage and/or loss;
changes in the regulatory environment; and
natural phenomena such as inclement weather conditions, floods, droughts and earthquakes.
These or other occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or
death, environmental damage, delays in mining, delayed production, monetary losses and possible legal liability. Satisfying such
liabilities could be very costly and could have a material adverse effect on our financial position and results of operations.
Our mining operations are subject to numerous environmental laws, regulations, permitting requirements and bonding
requirements that can delay production and adversely affect operating and development costs.
Compliance with existing regulations governing the discharge of materials into the environment, or otherwise relating to
environmental protection, in the jurisdictions where we have projects may have a material adverse effect on our exploration activities,
results of operations and competitive position. New or expanded regulations, if adopted, could affect the exploration, development, or
operation of our projects or otherwise have a material adverse effect on our operations.
A significant portion of our Dunkwa property and portions of our Wassa property, as well as some of our exploration properties in
Ghana, are located within forest reserve areas. Although Dunkwa and Wassa have been identified by the Government of Ghana as
eligible for mining permits, subject to normal procedures and a site inspection, permits for projects in forest reserve areas may not be
issued in a timely fashion, or at all, and such permits may contain special requirements with which it is burdensome or uneconomic to
comply.
Mining and processing gold from the south end of the Prestea property and from the Mampon property as well as the other planned
activities will require mining, environmental, and other permits and approvals from the Government of Ghana. These permits and
approvals may not be issued on a timely basis or at all, and such permits and approvals, when issued, may be subject to requirements
or conditions with which it is burdensome or uneconomic to comply. Such permitting issues could adversely affect our projected
production commencement dates, production amounts and costs.
Our pit at Dumasi will require us to implement a resettlement action plan and reach agreements with the residents that live close to the
pits. These negotiations could be difficult or unsuccessful and may materially affect our ability to access these Mineral Reserves and
Mineral Resources.
Due to an increased level of non-governmental organization activity targeting the mining industry in Ghana, the potential for the
Government of Ghana to delay the issuance of permits or impose new requirements or conditions upon mining operations in Ghana
may increase. Any changes in the Government of Ghana’s policies may be costly to comply with and may delay mining operations.
The exact nature of other environmental control problems, if any, which we may encounter in the future, cannot be predicted,
primarily because of the changing character of environmental requirements that may be enacted within various jurisdictions.
As a result of the foregoing risks, project expenditures, production quantities and rates and cash operating costs, among other things,
could be materially and adversely affected and could differ materially from anticipated expenditures, production quantities and rates,
and costs. In addition, estimated production dates could be delayed materially. Any such events could materially and adversely affect
our business, financial condition, results of operations and cash flows.
The development and operation of our mining projects involve numerous uncertainties that could affect the feasibility or
profitability of such projects.
Mine development projects, including our recent development at Benso and expansion at Bogoso/Prestea typically require a number of
years and significant expenditures during the development phase before production is possible.
Development projects are subject to the completion of successful feasibility studies and environmental and socioeconomic
assessments, issuance of necessary governmental permits and receipt of adequate financing. The economic feasibility of development
projects is based on many factors such as:
•
•
•
•
•
•
estimation of Mineral Reserves and Mineral Resources;
mining rate, dilution and recovery;
anticipated metallurgical characteristics of the ore and gold recovery rates;
environmental and community considerations, permitting and approvals;
future gold prices; and
anticipated capital and operating costs.
Estimates of Proven and Probable Mineral Reserves and operating costs developed in feasibility studies are based on reasonable
assumptions including geologic and engineering analyses and might not prove to be accurate.
The management of mine development projects and start up of new operations is complex. Completion of development and the
commencement of production may be subject to delays, as occurred at Wassa and in connection with the Bogoso sulfide expansion
project. Any of the following events, among others, could affect the profitability or economic feasibility of a project:
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unanticipated changes in grade and tonnage of ore to be mined and processed;
unanticipated adverse geotechnical conditions;
incorrect data on which engineering assumptions are made;
costs of constructing and operating a mine in a specific environment;
cost of processing and refining;
availability of economic sources of power;
availability of qualified staff;
adequacy of water supply;
adequate access to the site including competing land uses (such as agriculture and illegal mining);
unanticipated transportation costs and shipping incidents and losses;
significant increases in the cost of diesel fuel, cyanide or other major components of operating costs;
government regulations (including regulations relating to prices, royalties, duties, taxes, permitting, restrictions on
production, quotas on exportation of minerals, protection of the environment and agricultural lands, including bonding
requirements);
fluctuations in gold prices; and
accidents, labor actions and force majeure events.
Adverse effects on the operations or further development of a project could also adversely affect our business, financial condition,
results of operations and cash flow. Because of these uncertainties, and others identified in these “Risk Factors,” our production
estimates at Bogoso/Prestea and Wassa may not be achieved.
We need to continually discover, develop or acquire additional Mineral Reserves for gold production and a failure to do so
would adversely affect our business and financial position in the future.
Because mines have limited lives based on Proven and Probable Mineral Reserves, we must continually replace and expand Mineral
Reserves as our mines produce gold. We are required to estimate mine life in connection with our estimation of reserves, but our
estimates may not be correct. In addition, mine life would be shortened if we expand production or if we lose reserves due to changes
in gold price or operating costs. Our ability to maintain or increase our annual production of gold will be dependent in significant part
on our ability to bring new mines into production and to expand or extend the life of existing mines.
Gold exploration is highly speculative, involves substantial expenditures, and is frequently non-productive.
Gold exploration, including the exploration of the Prestea Underground and other projects, involves a high degree of risk. Exploration
projects are frequently unsuccessful. Few prospects that are explored are ultimately developed into producing mines. We cannot
assure you that our gold exploration efforts will be successful. The success of gold exploration is dependent in part on the following
factors:
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the identification of potential gold mineralization based on surface analysis;
availability of prospective land;
availability of government-granted exploration and exploitation permits;
the quality of our management and our geological and technical expertise; and
the funding available for exploration and development.
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Substantial expenditures are required to determine if a project has economically mineable mineralization. It could take several years to
establish Proven and Probable Mineral Reserves and to develop and construct mining and processing facilities. As a result of these
uncertainties, we cannot assure you that current and future exploration programs will result in the discovery of Mineral Reserves, the
expansion of our existing Mineral Reserves and the development of mines.
We face competition from other mining companies in connection with the acquisition of properties.
We face strong competition from other mining companies in connection with the acquisition of properties producing, or capable of
producing, gold. Many of these companies have greater financial resources, operational experience and technical capabilities. As a
result of this competition, we might be unable to maintain or acquire attractive mining properties on terms we consider acceptable or
at all. Consequently, our future revenues, operations and financial condition could be materially adversely affected.
Title to our mineral properties could be challenged.
We seek to confirm the validity of our rights to title to, or contract rights with respect to, each mineral property in which we have a
material interest. We have mining leases with respect to our Bogoso/Prestea, Wassa, Prestea Underground and HBB properties. As of
February 2009, our mineral rights at the Paul Isnard gold property in French Guiana and various concession contracts and settlements
related to the Hwini-Butre concession are being challenged by third parties. Although we are vigorously defending these challenges,
we cannot guarantee that title to our properties will not be challenged. Title insurance generally is not available, and our ability to
ensure that we have obtained a secure claim to individual mineral properties or mining concessions is limited. We generally do not
conduct surveys of our properties until they have reached the development stage, and therefore, the precise area and location of such
properties could be in doubt. Accordingly, our mineral properties could be subject to prior unregistered agreements, transfers or
claims, and title could be affected by, among other things, undetected defects. In addition, we might be unable to operate our
properties as permitted or to enforce our rights with respect to our properties.
We depend on the services of key executives.
We are dependent on the services of key executives including our President and Chief Executive Officer and a small number of highly
skilled and experienced executive personnel. Due to the relatively small size of our management team, the loss of one or more of these
persons or our inability to attract and retain additional highly skilled employees could have an adverse effect on our business and
future operations.
Our insurance coverage could be insufficient.
Our business is subject to a number of risks and hazards generally, including:
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adverse environmental conditions;
industrial accidents;
labor disputes;
unusual or unexpected geological conditions;
ground or slope failures;
cave-ins;
changes in the regulatory environment;
marine transit and shipping damage and/or losses;
natural phenomena such as inclement weather conditions, floods and earthquakes; and
political risks including expropriation and civil war.
Such occurrences could result in:
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damage to mineral properties or production facilities and equipment;
personal injury or death;
loss of legitimate title to properties;
environmental damage to our properties or the properties of others;
delays in mining, processing and development;
monetary losses; and
possible legal liability.
Although we maintain insurance in amounts that we believe to be reasonable, our insurance might not cover all the potential risks
associated with our business. We might also be unable to maintain insurance to cover these risks at economically feasible premiums.
Insurance coverage might not continue to be available or might not be adequate to cover any resulting liability. Moreover, insurance
against risks such as environmental pollution or other hazards as a result of exploration and production is not generally available to us
or to other companies in the mining industry on acceptable terms. We might also become subject to liability for pollution or other
hazards which we cannot insure against or which we might elect not to insure against because of premium costs or other reasons.
Losses from these events might cause us to incur significant costs that could have a material adverse effect upon our financial
performance and results of operations.
Governmental and Regulatory Risks
As a holding company, limitations on the ability of our operating subsidiaries to make distributions to us could adversely
affect the funding of our operations.
We are a holding company that conducts operations through foreign (principally Ghanaian) subsidiaries and joint ventures, and
substantially all of our assets consist of equity in these entities. Accordingly, any limitation on the transfer of cash or other assets
between the parent corporation and these entities, or among these entities, could restrict our ability to fund our operations efficiently,
or to repay our convertible notes or other debt. Any such limitations, or the perception that such limitations might exist now or in the
future, could have an adverse impact on available credit and our valuation and stock price.
We are subject to changes in the regulatory environment where we operate which may increase our costs of compliance.
Our mining operations and exploration activities are subject to extensive regulation governing various matters, including:
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licensing;
production;
taxes;
disposal of process water or waste rock;
toxic substances;
development and permitting;
exports and imports;
labor standards;
mine and occupational health and safety;
environmental protection and corporate responsibility; and
mine reclamation and closure plans.
Compliance with these regulations increases the costs of the following:
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planning;
designing;
drilling;
operating;
developing;
constructing; and
closure, reclamation and rehabilitation.
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We believe that we are in substantial compliance with current laws and regulations in Ghana and elsewhere. However, these laws and
regulations are subject to frequent change and reinterpretation Amendments to current laws and regulations governing operations and
activities of mining companies or more stringent implementation or interpretation of these laws and regulations could have a material
adverse impact on us. These factors could cause a reduction in levels of production and delay or prevent the development or expansion
of our properties in Ghana.
The implementation of changes in regulations that limit the amount of proceeds from gold sales that could be withdrawn from Ghana
could also have a material adverse impact on us, as Bogoso/Prestea and Wassa are currently our only sources of internally generated
operating cash flows.
Environmental bonding requirements are under review in Ghana and bonding requirements may be increased.
As part of its periodic assessment of mine reclamation and closure costs, the EPA reviews the adequacy of reclamation bonds and
guarantees. In certain cases it has requested higher levels of bonding based on its findings. If the EPA were to require additional
bonding at our properties, it may be difficult, if not impossible, to provide sufficient bonding given the current disruptions in the world
financial markets. If we are unable to meet any such increased requirements or negotiate an acceptable solution with the Ghanaian
government, our operations and exploration and development activities in Ghana may be materially adversely affected.
The Government of Ghana has the right to increase its interest in certain subsidiaries.
In accordance with the Minerals and Mining Act, 2006 (Act 703), the Government of Ghana has a 10% carried interest in the mineral
operations of Ghanaian mining companies. The carried interest comes into existence at the time the government issues a mining
license. As such, the Government of Ghana currently has a 10% carried interest in our subsidiaries that own the Bogoso/Prestea mine,
the HBB properties, the Wassa mine, and the Prestea Underground property.
Under Act 703, the Government has the right to acquire a special share or “golden share” in such subsidiaries at any time for no
consideration or such consideration as the Government of Ghana and such subsidiaries might agree, and a pre-emptive right to
purchase all gold and other minerals produced by such subsidiaries. A “golden share” carries no voting rights and does not participate
in dividends, profits or assets.
While the Government of Ghana has not sought to exercise any of these rights at our properties, any such attempts to do so in the
future could adversely affect our financial results.
We are subject to risks relating to exploration, development and operations in various countries.
Our assets and operations are affected by various political and economic uncertainties in the countries where we operate, including:
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war, civil unrest, terrorism, coups or other violent or unexpected changes in government;
political instability and violence;
expropriation and nationalization;
renegotiation or nullification of existing concessions, licenses, permits, and contracts;
illegal mining;
changes in taxation policies;
restrictions on foreign exchange and repatriation; and
changing political conditions, currency controls, and governmental regulations that favor or require the awarding of
contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction.
Illegal mining has occurred on our properties, is difficult to control, can disrupt our business and can expose us to liability.
We continue to experience illegal mining activity on our mining and exploration properties. Most of this activity is on our Prestea
South and Hwini-Butre properties. While we are proactively working with local, regional and national governmental authorities to
obtain protection of our property rights, any action on the part of such authorities may not occur, may not fully address our problems
or may be delayed.
In addition to the impact on our Mineral Reserves and non-reserves, the presence of illegal miners can lead to project delays and
disputes and delays regarding the development or operation of commercial gold deposits. The work performed by the illegal miners
could cause environmental damage or other damage to our properties, or personal injury or death, for which we could potentially be
held responsible. Illegal miners may work on other of our properties from time to time, and they may in the future increase their
presence and have increased negative impacts such as those described above on such other properties.
Our activities are subject to complex laws, regulations and accounting standards that can adversely affect operating and
development costs, the timing of operations, the ability to operate and financial results.
Our business, mining operations and exploration and development activities are subject to extensive Canadian, United States,
Ghanaian and other foreign, federal, state, provincial, territorial and local laws and regulations governing exploration, development,
production, exports, taxes, labor standards, waste disposal, protection of the environment, reclamation, historic and cultural resource
preservation, mine safety and occupational health, toxic substances, reporting and other matters, as well as accounting standards.
Compliance with these laws, regulations and standards or the imposition of new such requirements could adversely affect operating
and development costs, the timing of operations, the ability to operate and financial results.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and share price.
We are required to annually test our internal control over financial reporting to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over
financial reporting. Failure to maintain effective internal controls could have a material adverse effect on our business and share price.
Market Risks
The market price of our common shares has experienced volatility and could continue to do so in the future.
Our common shares are listed on the NYSE Alternext US, the Toronto Stock Exchange and the Ghana Stock Exchange. Companies
with market capitalizations similar to ours have experienced substantial volatility in the past, often based on factors unrelated to the
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financial performance or prospects of the companies involved. These factors include macroeconomic developments in North America
and globally and market perceptions of the attractiveness of particular industries. Our share price is also likely to be significantly
affected by short-term changes in gold prices or in our financial condition or results of operations as reflected in our quarterly earnings
reports. Other factors unrelated to our performance that could have an effect on the price of our common shares include the following:
the extent of analytical coverage available to investors concerning our business could be limited if investment banks with
research capabilities do not continue to follow our securities;
the trading volume and general market interest in our securities could affect an investor’s ability to trade significant
numbers of common shares;
the size of the public float in our common shares may limit the ability of some institutions to invest in our securities; and
a substantial decline in our stock price that persists for a significant period of time could cause our securities to be delisted
from the NYSE Alternext US and the Toronto Stock Exchange further reducing market liquidity.
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As a result of any of these factors, the market price of our common shares at any given point in time might not accurately reflect our
long-term value. The stock markets in general have recently suffered major declines. Securities class action litigation often has been
brought against companies following periods of market price volatility that affects the market price of particular securities without
regard to the performance of the company whose stock price is affected. We could in the future be the target of similar litigation.
Securities litigation could result in substantial costs and damages and divert management’s attention and resources.
Investors could have difficulty or be unable to enforce certain civil liabilities on us, certain of our directors and our experts.
Golden Star is a Canadian corporation. Substantially all of our assets are located outside of Canada and the United States, and our
head office is located in the United States. It might not be possible for investors to collect judgments obtained in Canadian courts
predicated on the civil liability provisions of Canadian or U.S. securities legislation. It could also be difficult for you to effect service
of process in connection with any action brought in the United States upon our directors and officers. Execution by United States
courts of any judgment obtained against us, or any of the directors or executive officers, in the United States courts would be limited
to our assets or the assets of such persons in the United States. The enforceability in Canada of United States judgments or liabilities in
original actions in Canadian courts predicated solely upon the civil liability provisions of the federal securities laws of the United
States is doubtful.
There are certain U.S. federal income tax risks associated with ownership of Golden Star common shares.
Holders of our common shares, warrants or options to purchase our common shares or convertible debentures (collectively, “Equity
Securities) who are U.S. taxpayers should consider that we could be considered to be a “passive foreign investment company”
(“PFIC”) for U.S. federal income tax purposes. Although we believe that we were not a PFIC for 2008, and do not expect to become a
PFIC in 2009 and in the foreseeable future, the tests for determining PFIC status depend upon a number of factors, some of which are
beyond our control, and can be subject to uncertainties, and we cannot assure you that we will not be a PFIC. We undertake no
obligation to advise holders of our Equity Securities as to our PFIC status for any year.
If we are a PFIC for any year, any person who holds our Equity Securities who is a U.S. person for U.S. income tax purposes (a “U.S.
Holder”) and whose holding period for those Equity Securities includes any portion of a year in which we are a PFIC generally would
be subject to a special adverse tax regime in respect of “excess distributions.” Excess distributions include certain distributions
received with respect to PFIC shares in a taxable year. Gain recognized by a U.S. Holder on a sale or other transfer of our Equity
Securities (including certain transfers that would otherwise be tax free) also would be treated as an excess distributions. Such excess
distributions and gains would be allocated ratably to the U.S. Holder’s holding period. For these purposes, the holding period of shares
acquired either through an exercise of warrants or options or the conversion of convertible debentures includes the holder’s holding
period in the warrant, option or convertible debt.
The portion of any excess distribution (including gains treated as excess distributions) allocated to the current year would be
includible as ordinary income in the current year. The portion of any excess distribution allocated to a prior years would be taxed at
the highest marginal rate applicable to ordinary income for each such year (regardless of the taxpayer’s actual marginal rate for that
year and without reduction by any losses or loss carryforwards) and would be subject to interest charges to reflect the value of the U.S.
income tax deferral.
Elections may be available to mitigate the adverse tax rules that apply to PFICs (the so-called “QEF” and “mark-to-market” elections),
but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income. The QEF
and mark-to-market elections are not available to U.S. Holders with respect to warrants or options to acquire our common shares or
convertible debentures. We have not decided whether we would provide to U.S. holders of our common shares the annual information
that would be necessary to make the QEF election.
Additional special adverse rules also apply to investors who are U.S. Holders who own our common shares if we are a PFIC and have
a non-U.S. subsidiary that is also a PFIC. Special adverse rules that impact certain estate planning goals could apply to our Equity
Securities if we are a PFIC.
The conversion feature of our Convertible Senior Unsecured Debentures could limit increases in the trading price of our
common shares.
The conversion price of our 4% Convertible Senior Unsecured Debentures due November 2012 is $5.00 and represented a 31%
premium over the closing price of the common shares on the NYSE Alternext US on October 23, 2007, the day prior to
commencement of the debenture offering. In the event our share price is greater than the conversion price, this conversion feature may
limit the increase in the price of our common shares, since any increase in the stock price above the conversion price will make it
more likely that debentures will be converted, thereby exerting a downward pressure on the market price of the common shares.
The existence of outstanding rights to purchase or acquire common shares could impair our ability to raise capital.
As of February 24, 2009, approximately 7.6 million common shares are issuable on exercise of options to purchase common shares at
prices ranging from Cdn$1.02 to Cdn$9.07. In addition, 25.0 million common shares are currently issuable upon conversion of our 4%
Convertible Senior Unsecured Debentures due in November 2012 (additional shares may be issuable in certain circumstances). During
the life of the options, debentures and other rights, the holders are given an opportunity to profit from a rise in the market price of
common shares, with a resulting dilution in the interest of the other shareholders. Our ability to obtain additional financing during the
period such rights are outstanding could be adversely affected, and the existence of the rights could have an adverse effect on the price
of our common shares. The holders of the options, debentures and other rights can be expected to exercise or convert them at a time
when we would, in all likelihood, be able to obtain any needed capital by a new offering of securities on terms more favorable than
those provided by the outstanding rights.
Current Global Financial Condition may impact our ability to obtain financing and may negatively affect our asset values and
results of operations.
Current global financial conditions have been characterized by increased volatility and several financial institutions have either gone
into bankruptcy or have had to be rescued by governmental authorities. Access to public financing has been negatively impacted by
both the rapid decline in value of sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market.
These factors may impact our ability to obtain equity or debt financing in the future on favorable terms. Additionally, these factors, as
well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in
impairment losses. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted and
the trading price of the common shares may be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2.
DESCRIPTION OF PROPERTIES
MAPS OF OPERATIONS AND PROPERTIES
The maps below show the locations of Bogoso, Prestea, Wassa, Pampe, the HBB properties and Mampon in Ghana, and various
exploration properties in other areas of West Africa. These properties are described in further detail below.
PROPERTY STATUS TABLE
The chart below summarizes information regarding our more significant properties, which are described in further detail below:
Property
Bogoso (Ghana) ......
Bogoso Mining
Lease 1
Bogoso Mining
Lease 2
Type of Interest
Government
granted mining
leases held by a
90% owned
subsidiary
Expiry Date Property size
8/20/2017
50 km2
8/15/2018
45 km2
2008
Status
Active
Comments
Mining stage
Bogoso (Ghana) ......
Bogoso
Prospecting
License
Prospecting License 3/10/2004
Renewal
under
application
58.52 km2
Inactive
Exploration stage
Prestea (Ghana)....... Prestea Mining
Surface Lease
Government
granted mining
lease held by a 90%
owned subsidiary
Prestea Underground
(Ghana)...........
Prestea
Underground
Mining Lease
Government
granted mining
lease held by a 81%
beneficial interest
Wassa (Ghana) ........ Wassa Mining
Lease
Government
granted mining
lease held by a 90%
owned subsidiary
6/28/2031 115.5 km2
Active
Mining and
development
stage
Active
Exploration stage
7/6/2031 115.5 km2
lies directly
below
Prestea
surface
lease
9/16/2022 52.89 km2
Active
Mining stage
Prospecting license 5/9/2009 15.68 km2
Active
Exploration stage
Wassa Regional
(Ghana) ..............
Accra
Newtown
Adaase
Reconnaissance
license
Ateiku-Twifo
Reconnaissance
license (RL)
45.6km2
Exploration stage
39.45km2
Exploration stage
10/10/2006
Renewal
process in
advance
stage
Processing
of RL
(new) in
advance
stage
Property
Type of Interest
Expiry Date
Property size
24.05km2
2008
Status
Comments
Exploration stage
129.3km2
Exploration stage
Dwaben
(Safric)
Reconnaissance
license
Nyenase
Reconnaissance
license
2/7/2007,
renewal
under
application
8/17/2005,
renewal
under
application
Dunkwa-Asikuma
(Ghana)
Prospecting license 12/20/2008
Renewal
under
application,
66 km2
Active
Development
stage
Dunkwa-Mansiso
(Ghana)
Prospecting license
9/3/2009
56 km2
Active
Exploration stage
Akropong
(Ghana)
Alkebulan
Prospecting licenses
25.04 km2
Exploration stage
7/15/2006
Renewal
under
application
11/15/2008
Renewal
under
application
40.25km2
138 km2
01/10/2010
43.2 km2
Mining lease
6/3/2012
50 km2
Active
Active
Active
Mining lease
01/10/2012
40 km2
Active
Mining and
exploration stage
Development
stage/advanced
exploration stage
3 Prospecting
licenses and joint
venture agreements
Various
221.11 km2
Active
Exploration stage
Mining lease
09/26/2011
20.38 km2
Active
Mining and
Exploration stage
Prospecting license
9/6/2008
Renewal
under
application
22.46 km2
Active
Exploration
Stage
Joset
Kobra-
Riyadh East
Moseaso
Pampe
Mining
Lease
Pampe
Hwini-Butre
(Ghana)
Manso
(Ghana)
Benso –
Subriso
Block
(Ghana)
Benso-
Amantin &
Chichiwelli
Blocks
(Ghana)
Ghana Regional
Abura
Adubrim
Afranse
Hotopo
Osenese
Takoradi
North
Reconnaissance license – joint
venture
Reconnaissance license
9/6/2008 Renewal under
application
12/03/2008
Renewal under application
129.05km2
Active Exploration
Stage
85.17km2
Prospecting license – joint
venture
7/24/2009
77.46km2
Reconnaissance licenses- joint
venture
12/19/2008
Renewal under application
18.06km2
Prospecting license – joint
venture
9/7/2008,
Renewal under application
66.21 km2
Reconnaissance license
6/6/2008
Côte d’Ivoire
Regional
Amelekia
Abengourou
Agboville
Seguela
Exploration License
Exploration License
Exploration License
Prospecting License
8/10/2010
8/10/2010
8/10/2010
1/9/2010
1282.43
km2
810.05 km2
998.03 km2
999.7 km2
988 km2
Active Exploration
Stage
Mano JV
(Sierra Leone)
Sonfon South Mano River Resources Inc
8/3/2007
Renewal under application
160 km2 Active Exploration
stage
Sonfon North Mano River Resources Inc
8/3/2007
Renewal under application
100 km2
Exploration
stage
Property
Type of Interest
Goulagou Agreement allow
earning up to 90%
Burkina
Faso
Expiry Date
11/19/2011
Property size
181.25 km2
2008
Status
Active
Rounga
Agreement allow
earning up to 90%
10/9/2012
240 km2
Youba
Agreement allow
earning up to 90%
10/17/2017
61.75 km2
Comments
Optioned to
Riverstone
Resources Inc.
Optioned to
Riverstone
Resources Inc.
Optioned to
Riverstone
Resources Inc.
Formerly part of
the optioned
Goulagou permit
Exploration stage
Tougou
Bangodo
Exploration Permit –
100% held by GSE-
BF (GSR subsidiary)
Exploration Permit –
100% held by GSE-
BF (GSR subsidiary)
Kampouaga
100 % held by GSR-
BF (GSR Subsidiary)
n/a
n/a
Exploration permit
Paul-Isnard
PER
Exploration permit
Niger
Deba
Tialkam
Bon Espoir
PER
French
Guiana
French
Guiana
(cont’d)
8/21/2017
128 km2
10/17/2017
249.77 km2
Exploration stage
10/17/2017
243.99 km2
Exploration stage
742 km2
1100 km2
465.5 km2
Active
Exploration stage
Active
Exploration stage
140 km2
Active
12/27/2010
12/27/2010
10/31/2006
Renewal
under
application
11/30/2007
Renewal
under
application
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Paul-Isnard
Concession
Mining lease
12/31/2018
1.32 km2
Mining lease
12/31/2018
5 km2
Mining lease
12/31/2018
18.47 km2
Mining lease
12/31/2018
16.07 km2
Mining lease
12/31/2018
23.92 km2
Mining lease
12/31/2018
25 km2
Mining lease
12/31/2018
25 km2
Mining lease
12/31/2018
25 km2
Exploration stage
Brazil Regional:
Various exploration
permits and applications
Various
980 km²
Active
Exploration stage
Suriname
Saramacca
Various government
granted rights and
option agreements with
property owners
Rights of exploration
renewals and transfers
pending under option
agreements
536 km2
Active
Benzdorp
South
Various government
granted rights and
option agreements with
property owners
Rights of exploration and
rights of reconnaissance
970 km²
Active
Exploration stage
joint venture with
Newmont
Farm out
agreement of
underlying option
rights
MINING IN GHANA
Ghanaian Ownership and Special Rights
Ghana is situated on the West Coast of Africa, approximately 600 kilometers north of the equator on the Gulf of Guinea. Accra, the
capital city of Ghana, is located on the Prime Meridian. Following a period as a British colony, Ghana achieved independence in 1957
and it is now a republic with a democratically elected government. Ghana has a population of approximately 21 million people.
English is the official and commercial language. The total land area of the country is approximately 238,000 square kilometers and the
topography is relatively flat. Ghana has a tropical climate with two rainy seasons and two dry seasons each year in the western region.
Rights to explore and develop a mine are administered by the Minister of Lands, Forestry and Mines through the Minerals
Commission, a governmental organization designed to promote and control the development of Ghana’s mineral wealth in accordance
with the Minerals and Mining Act of 2006 (Act 703), which came into effect in March 2006 (“The 2006 Act”). A company or
individual can apply to the Minerals Commission for a renewable exploration license granting exclusive rights to explore for a
particular mineral in a selected area for an initial period not exceeding three years. When exploration has successfully delineated a
Mineral Reserve, an application may be made to the Minerals Commission for conversion to a mining lease, granting a company the
right to produce a specific product from the concession area, normally for a period of 20 to 30 years. Production must typically begin
within two years of the date of grant of a mining lease.
The 2006 Act, requires that any person who intends to acquire a controlling share of the equity of any mining company that has been
granted a mining lease must first give notice of its intent to the Government and obtain its consent prior to acquiring a controlling
share.
Under the 2006 Act, the Government of Ghana continues to hold a 10% carried interest in all companies that hold mining leases. The
10% carried interest entitles the Government to a pro-rata share of future dividends. The Government has no obligation to contribute
development capital or operating expenses. GSBPL and GSWL owe $476 million and $188 million, respectively, to Golden Star or its
subsidiaries as of December 31, 2008 for past advances and interest on these advances, and these amounts would be repaid before
payment of any dividends.
Under the 2006 Act, the Government of Ghana continues to be entitled to acquire a special or golden share in any mining company at
any time for no consideration or for such consideration as the Government and the mining company might agree. The special share
would constitute a separate class of shares with such rights as the Government and the mining company might agree. In the absence of
such agreement, the special share would have the following rights:
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it would carry no voting rights, but the holder would be entitled to receive notice of and to attend and speak at any general
meeting of the members or any separate meeting of the holders of any class of shares;
it could only be issued to, held by, or transferred to the Government or a person acting on behalf of the Government;
the written consent of the holder would be required for all amendments to the organizational documents of the company,
the voluntary winding-up or liquidation of the company or the disposal of any mining lease or the whole or any material
part of the assets of the company;
it would not confer a right to participate in the dividends, profits or assets of the company or a return of assets in a
winding up or liquidation of the company;
the holder of a special share may require the company to redeem the special share at any time for no consideration or for a
consideration determined by the company.
GSBPL and GSWL have not issued nor to date been requested to issue a special share to the Government of Ghana.
The Government of Ghana has a pre-emptive right to purchase all gold and other minerals produced by mines in Ghana. The purchase
price would be agreed by the Government of Ghana and the mining company, or the price established by any gold hedging
arrangement between and any third party approved by the Government, or the publicly quoted market price prevailing for the minerals
or products as delivered at the mine or plant where the right of preemption was exercised. The Government of Ghana has agreed to
take no preemptive action pursuant to its right to purchase gold or other minerals so long as mining companies sell gold in accordance
with certain procedures approved by the Bank of Ghana.
Ghanaian Royalty Requirements
The holder of a mining lease is required to pay quarterly a royalty of not less than 3% and not more than 6% of gold revenues. The
Government of Ghana determines the royalty percentage each year based on the ratio that the operating margin bears to the value of
gold produced from a mining lease in that year. Based on the Mineral Royalty Regulation currently in force, the royalty is 3% when
the operating ratio is 30% or less, and increases 0.075% for each 1% increase in operating ratio until it reaches a maximum of 6% at
an operating ratio of 70%. In 2008, 2007 and 2006 the royalty rate for GSBPL was 3% of revenues and GSBPL paid $4.5 million,
$2.6 million and, $1.9 million, respectively. The royalty payments from GSBPL have not exceeded 3% per annum in any year. GSWL
paid a 3% royalty of $3.3 million, $2.7 million and $1.5 million in 2008, 2007 and 2006, respectively.
Ghanaian Environmental Regulations
Environmental matters in Ghana, including those related to mining, fall under the oversight of the Environmental Protection Agency
(“EPA”), with some responsibilities lying with the Minerals Commission. The EPA has rules and guidelines that govern
environmental impact statements, environmental management plans, mine operations, and mine closure and reclamation, to which our
operations are subject. Additional provisions governing surface uses by our stakeholders are provided in the 2006 Act.
In 2005, pursuant to a reclamation bonding agreement between the EPA and GSWL, we bonded $3.0 million to cover future
reclamation obligations at Wassa. To meet the bonding requirements, we established a $2.85 million letter of credit and deposited
$0.15 million of cash with the EPA. Pursuant to a further bonding agreement between the EPA and GSBPL, we bonded $9.5 million
in early 2006 to cover our future obligations at Bogoso/Prestea. To meet these requirements, we deposited $0.9 million of cash with
the EPA with the balance covered by a letter of credit. In 2008 the bond was increased by $0.5 million to cover the Pampe mining site.
In 2008, the EPA required Bogoso/Prestea to resubmit their Environmental Management Plan (“EMP”) with an updated estimate of
the reclamation and closure costs prepared by a third party consultant. A consultant was commissioned to prepare the cost estimate
and the EMP was submitted to the EPA in February, 2009. We are currently waiting for the EPA’s review and comments.
Reclamation activities were ongoing at both Wassa and Bogoso/Prestea during 2008 to rehabilitate disturbed lands and reduce some of
the long-term liabilities including re-profiling waste dumps, capping hard rock with oxide materials, topsoil spreading and planting for
both slope stabilization and long-term rehabilitation. Our consolidated reclamation expenditures totaled $1.2 million, $0.9 million and
$1.1 million respectively in 2008, 2007 and 2006. We believe all our operations in Ghana are currently in substantial compliance with
all environmental requirements.
Environmental Laws and Regulations
All phases of our operations are subject to environmental laws and regulations in the various jurisdictions where we operate. These
regulations may define, among other things, air and water quality standards, waste management requirements, and land rehabilitation
obligations. In general, environmental legislation is evolving to require stricter operating standards, more detailed social and
environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors,
and employees for social responsibility and safety. Future changes in environmental regulations, will likely affect the way in which we
operate, resulting in higher environmental and social operating costs that may affect the viability of our operations.
We use hazardous chemicals in our gold recovery activities that result in the generation of environmental contaminants that may
adversely affect air and water quality. To mitigate these effects, we have established objectives in meeting, or surpassing, regulatory
requirements in all of our exploration, development, operation, closure, and post-closure activities so that the local environment and
communities are protected and that the post-closure land use contributes to the sustainability of the local economy. In order to meet
our objectives, we have:
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Educated our leaders and managers so that they are committed to creating a culture that makes social and environmental
matters an integral part of the short- and long-term operations and performance management systems;
• Worked with our employees so that they understand and accept environmental and social policies and procedures as a
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fundamental part of the business;
Signed the International Cyanide Management Code (“the Code”);
Implemented the Code aiming to ensure that our established policies and procedures adhere to the Code’s best practices;
Established, or are in the process of establishing, operating standards and procedures that aim to meet or exceed
requirements in relevant laws and regulations, the commitments made in our environmental impact statements,
environmental and socioeconomic management plans, rehabilitation and closure plans; and any international protocols to
which we are a signatory;
Incorporated environmental performance requirements into all relevant contracts;
Provided training to employees and contractors in environmental matters;
Regularly prepared, reviewed, updated and implemented site-specific environmental management and closure plans;
• Worked to progressively rehabilitate disturbed areas in conformance with the site-specific environmental management and
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closure plans;
Consulted local communities and regulators to provide us with input to our environmental management policies and
procedures;
Regularly reviewed our environmental performance; and
Publicly reported our social, health, safety, and environmental performance.
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Governmental approvals and permits are currently required and will likely continue to be required in the future in connection with our
operations. To the extent that such approvals are required and not obtained, we could be limited or prohibited from continuing our
mining and processing operations or from proceeding with planned exploration or the development of mineral properties.
Our mining, processing, development and mineral exploration activities are subject to various laws governing prospecting,
development, production, taxes, labor standards, occupational health and safety, land claims of local people and other matters. New
rules and regulations may be enacted or existing rules and regulations may be applied in a manner that could have an adverse effect on
our financial position and results of operations.
CORPORATE SOCIAL RESPONSIBILITY
In keeping with our health and safety, environmental, community relations and human rights policies, we strive at all times to conduct
our business as a responsible corporate citizen. We believe our ongoing success in Ghana depends on our continuing efforts to build
good relations with our local stakeholder communities and by incorporating broader stakeholder comments and addressing their
concerns in our developing projects and ongoing operations. We believe our success as an employer, as a neighbor and as an
important part of the local economy is furthered by contributing to the diversification of the local economy with projects such as our
Oil Palm Project and by our support of community-driven projects through our Development Foundation. During 2008, the
Development Foundation worked with the local Community Mine Consultation Committees to fund and sponsor several community–
driven projects including a medical clinic, scholarships for local students, a police station and school buildings.
The Oil Palm Project continued to attract much favorable attention during 2008 and approximately doubled in size during the year. In
July 2008, the first Bogoso plantation plots were handed over to plot holders in a ceremony attended by the Minister of Lands,
Forestry, and Mines, and presided over by the Paramount Chief. In all, 69 people were assigned 4 hectare plots within the plantation.
Further plantation development and oversight will remain with Golden Star but the ongoing work on the farms and profits generated
will be assigned to the individual plot holders. To further transparency, a full suite of procedures governing the operation of Project is
now being implemented. For its community efforts, the Project was designated as the first project outside South Africa to be honored
with the prestigious Nedbank Green Mining Award.
Our commitment to the development of our stakeholder communities demonstrates Golden Star’s dedication to Ghana and to sharing
the success of our operations with our local communities. As we continue to expand the Oil Palm Project, we will integrate more local
people and communities into our economic development and outreach programs, so assisting the Western Region of Ghana to achieve
its full potential within the broader Ghana development.
OPERATING PROPERTIES
The Bogoso/Prestea Gold Mine
Bogoso/Prestea consists of a gold mining and processing operation located along the Ashanti Trend in western Ghana, approximately
35 kilometers northwest of the town of Tarkwa. It can be reached by paved roads from Tarkwa, a local commercial center, and from
Accra, the capital of Ghana. Bogoso and Prestea are adjoining mining concessions that together cover approximately 40 kilometers of
strike along the southwest trending Ashanti gold district. Mining areas at Bogoso and Prestea are linked to the Bogoso processing
plants by paved and gravel haul-roads located on our properties.
There are two ore processing facilities at Bogoso/Prestea, and open pit mining methods are employed. Ore is hauled by truck from the
pits to the processing plants. Equipment and facilities include a nominal 1.5 million tonne per annum oxide ore processing plant, a
nominal 3.5 million tonne per annum sulfide ore processing plant, a fleet of haul trucks, loaders and mining support equipment. In
addition, there are numerous ancillary support facilities including warehouses, maintenance shops, roadways, administrative offices,
an employee residential complex, power and water supply systems, a medical clinic, and a tailings disposal facility.
We acquired Bogoso in 1999 and Prestea in 2001. Historical gold output at the Bogoso processing plant has typically ranged between
90,000 and 150,000 ounces per year in recent years but increased to 170,499 ounces in 2008 following start-up of the new bio-
oxidation sulfide plant in mid-2007. See the “Operating Results for Bogoso/Prestea” section below for additional details on historical
production and operating costs.
In addition to the two plants and mining complex at Bogoso/Prestea, this property incorporates the Pampe deposit which is located
approximately 19 kilometers west of the Bogoso processing plants. As at December 31, 2008 we have estimated a Probable Mineral
Reserve of 1.3 million tonnes at an average gold grade of 3.67 g/t and we are mining at this property using open pit mining methods.
Pampe ore is hauled by truck to the Bogoso processing plants.
In addition to the Bogoso/Prestea complex described above, Bogoso/Prestea assets include the following non-operating properties:
Mampon - The Mampon deposit is located approximately 35 kilometers north of the Bogoso processing plant. Mampon is an
undeveloped gold deposit with as at December 31, 2008, an estimated 1.2 million tonnes of Probable Mineral Reserves at an average
gold grade of 5.48g/t, which we plan to mine by open pit mining methods. It is expected that Mampon ore will be hauled by truck to
the Bogoso processing plants starting at some time after 2009.
Prestea South - This property is discussed in more detail below under the DEVELOPMENT PROPERTIES section.
Prestea Underground - This property is discussed in more detail below under the EXPLORATION STAGE PROPERTIES IN
GHANA section.
Geology at Bogoso/Prestea
Bogoso/Prestea lies within the Eburnean Tectonic Province in the West African Precambrian Shield along the Ashanti Trend located
immediately south of the town of Bogoso. The area is dominated by a major northeast-southwest trending structural fault zone referred
to as the Ashanti Trend, which hosts the Prestea, Bogoso, Obuasi and Konongo gold deposits, among others. Parallel to the Ashanti
Trend is the Akropong Trend, which hosts the Ayanfuri deposit. The Akropong Trend is about 15 kilometers west of the Ashanti
Trend in the Bogoso region, and gradually converges with it at Obuasi forming the basis for the Obuasi mine, which is owned and
operated by AngloGold Ashanti Limited.
Mineral Reserves at Bogoso/Prestea
At December 31, 2008, Bogoso/Prestea had Proven and Probable Mineral Reserves, including the Probable Mineral Reserves at
Prestea South, Mampon and Pampe, of 23.8 million tonnes grading 3.09 g/t containing approximately 2.4 million ounces of gold
before any reduction for recovery losses and the Government of Ghana’s 10% minority interest. See the Proven and Probable Mineral
Reserves table and the Non-Reserves – Measured and Indicated Mineral Resource table in Item 1 of this Form 10-K. Bogoso/Prestea’s
Mineral Reserves declined during 2008 from 3.9 million ounces to 2.4 million ounces primarily due to increases in operating costs
during the year, especially in the cost of electric power. Lower gold recovery assumptions also contributed to the decrease in
Bogoso/Prestea’s Mineral Reserves, as did mining depletion of ore during the year. Most of the ounces of gold removed from Mineral
Reserves have now been reclassified as Mineral Resources. Future decreases in operating costs and/or increases in gold prices could
result in portions of these Mineral Resource being reclassified as Mineral Reserves.
Operating Results for Bogoso/Prestea
The following tables show historical operating results:
Bogoso/Prestea – Non-refractory ore
Non-refractory ore processed (t) ................................................................................................
Grade milled (g/t)..............................................................................................................................
Recovery %................................................................................................................................
2008
359,669
2.38
66.0
2007
2006
1,429,309 1,493,948
3.56
60.4
2.04
73.3
Bogoso/Prestea – Refractory ore (2)
Refractory ore processed (t)..............................................................................................................
Grade milled (g/t)..............................................................................................................................
Recovery %................................................................................................................................
2008
2,736,379
2.82
66.5
2007
1,640,318
2.44
52.1
2006
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Bogoso/Prestea – Total
Total gold sales (oz)(1) .......................................................................................................................
Cash operating costs ($/oz) ...............................................................................................................
2008
170,499
837
2007(2)
120,216
766
2006
103,792
412
(1) Gold sales are shown on a 100% basis, which represents our current beneficial interest in gold production and revenues. Once
all capital has been repaid, the Government of Ghana would receive 10% of the dividends from the subsidiary owning
Bogoso/Prestea.
(2) The Bogoso/Prestea sulfide processing plant was placed in service in July 2007.
Exploration at Bogoso/Prestea
Exploration efforts in 2008 concentrated on delineating and testing targets in an effort to provide additional feed for the Bogoso
processing plants. We continued with the interpretation and interrogation of the time domain electro magnetic (VTEM) airborne
geophysical data. Ranking of targets has been initiated and is expected to be finalized in 2009. Target ranking will be based on zones
with favorable geology and structure coinciding with zones of high conductivity. We expect this exercise to generate targets for drill
testing over the next several years, commencing in 2009.
Bogoso/Prestea Outlook for 2009
During 2009 we expect that the Bogoso sulfide plant will continue to process refractory sulfide ores from the pits at Bogoso/Prestea.
The oxide plant at Bogoso and the Pampe oxide mining operation is scheduled to remain on care and maintenance until late in 2009,
when we anticipate start-up of oxide ore mining at Prestea South, subject to receiving environmental permits. Once oxide ore mining
begins at Prestea South, mining is also expected to resume at Pampe with ore from both properties being transported by truck to the
Bogoso oxide plant for processing. We expect to eventually source additional oxide ore from the Mampon deposit. We expect
Bogoso/Prestea will produce approximately 200,000 ounces of gold in 2009 at an average cash operating cost of approximately $650
per ounce.
The Wassa Gold Mine
Overview of the Wassa Gold Mine
We own and operate the Wassa gold mine located approximately 35 kilometers east of Bogoso/Prestea in southwest Ghana. The
property was acquired in 2001 from a former owner who had operated the mine as a heap leach gold mine. The property, as now
constituted, includes a series of open-pits, a nominal 3.0 million tonne per annum CIL processing plant with its crushing and grinding
circuits, a fleet of mining equipment, ancillary facilities including an administration building, a warehouse, a maintenance shop, a
stand-by power generating facilities and an employee residential complex. We completed construction of the CIL processing plant in
early 2005, and the plant was placed in commercial service on April 1, 2005.
In mid-2008, ownership of the Benso and Hwini-Butre concessions was transferred from St. Jude Resources to GSWL. In the third
quarter of 2008, following completion of a 50 km haul road, we started mining at Benso and began hauling its ore to Wassa for
processing. In the fourth quarter of 2008 we began construction of a 30 km haul road south to the Hwini-Butre ore deposit and expect
to begin mining there in the second half of 2009. Ore grades at both Benso and Hwini-Butre are significantly higher than at Wassa and
are expected to contribute to increased gold output at Wassa.
Geology at Wassa
Wassa lies within the Eburnean Tectonic Province in the West African Precambrian Shield. The Proterozoic rocks that comprise most
of the West African craton and host the major gold mineralization in Ghana are subdivided into met sedimentary and volcanic rocks of
the Birimian and Tarkwaian sequences. Wassa is hosted within the same Birimian volcano-sedimentary greenstone package as
Bogoso/Prestea. However, Wassa is situated on the southeastern flank of the Ashanti Belt while Bogoso and Prestea occur along the
northwestern flank.
Mineral Reserves at Wassa
As at December 31, 2008, Wassa, including the HBB properties, had Proven and Probable Mineral Reserves of 11.7 million tonnes
with an average grade of 2.42 g/t containing approximately 0.9 million ounces of gold before recovery losses and any reduction for the
Government of Ghana’s 10% minority interest. See the Proven and Probable Mineral Reserves table and the Non-Reserves –
Measured and Indicated Mineral Resource table in Item 1 of this Form 10-K. While Wassa’s Mineral Reserves declined during 2008,
mostly due to mining depletion, this was partially offset by drilling at the HBB ore bodies which added 90,000 ounces.
Operating Results for Wassa
The following table displays historical operating results at Wassa.
Wassa Operating Results
Ore processed (t)...............................................................................................................................
Grade milled (g/t)..............................................................................................................................
Recovery %................................................................................................................................
Total gold production (oz) ................................................................................................................
Cash operating cost ($/oz) ................................................................................................................
2008
3,187,230
1.33
93.6
125,427
554
2007
2006
3,752,376 3,690,672
0.90
88.8
97,614
474
1.17
92.0
126,062
444
Exploration at Wassa
Exploration activities in the Wassa area during 2008 concentrated on the Wassa and Benso mining leases, as well as Chichiwelli. At
Wassa and Benso, development drilling targeted inferred Mineral Resources within optimized pit shells with the objective of
converting these Mineral Resources to the indicated Mineral Resource category. Benso development drilling was conducted in two
phases with the first phase being incorporated into an updated mineral resource estimate done mid-year which was used for the 2008
year end Mineral Reserve and Mineral Resource statements. Further development drilling at the remaining Wassa and Hwini Butre-
Benso pits has been budgeted for the first half of 2009.
Drilling activities at Chichiwelli continued during 2008, and an initial Mineral Resource estimate has been completed. The
Chichiwelli resource is located approximately 28 km from the Wassa plant, with the newly competed Benso haul road passing within
one kilometer of the areas drilled so far. While exploration results to date have been encouraging, further development would require
preparation of a feasibility study to fully evaluate the area’s potential and to determine if transporting the material to the Wassa plant
for processing is economically viable.
Wassa Outlook for 2009
Wassa is expected to process approximately 3,500 tonnes per day of HBB ore in 2009, with the balance of the plant feed to come from
the local Wassa pits. Wassa/HBB is expected to produce approximately 200,000 ounces in 2009 at an average cash operating cost of
approximately $450 per ounce.
DEVELOPMENT PROPERTIES
Prestea South Properties
The Prestea South project is located on the Ashanti Trend, southwest of the town of Prestea and approximately 20 km southeast of the
Bogoso processing plants. Gold mineralization is associated with the same Ashanti Trend fault structure that continues to the north
through our Bogoso and Prestea properties. While various sections of the mineral resources at Prestea South were mined by prior
owners using underground methods, the surface oxide mineral resources have not been extensively mined, and there are sulfide
mineral resources accessible by open pit mining. Our exploration efforts in recent years have identified several deposits along this
trend which can be mined by surface mining methods.
We received mining permits for this area in 2008. We have applied for environmental permits and expect to receive them during 2009.
If the permits are approved in a timely basis following the hearing, Prestea South development is expected to begin in 2009 with
production anticipated to start in late 2009. The Prestea South oxide ore will be transported to Bogoso and processed through the
Bogoso oxide plant. The Prestea South sulfide ore will be processed through the Bogoso sulfide plant.
As at December 31, 2008, the Prestea South properties had a total Probable Mineral Reserve of 3.7 million tonnes grading 2.71g/t
containing approximately 0.32 million ounces before any reduction for the Government of Ghana’s 10% minority interest. There was
an increase in illegal mining activity at the Prestea South properties during 2008, and the impact on mineral reserves is not known.
Approximately 50% of the Mineral Reserve is non-refractory. Ore from the Prestea South pits will be hauled by truck to the Bogoso
oxide processing plant along a 20 km haul road.
HBB Properties
The HBB properties, which lie at the southeastern end of the Ashanti trend in Ghana, were acquired in December 2005. Hwini-Butre
is located approximately 80 kilometers south of Wassa and occupies an area of approximately 40 square kilometers. Benso is located
directly north of the Hwini-Butre property and about 50 kilometers south of Wassa. We currently hold a 90% interest in the Benso
property (through our subsidiaries) and the Government of Ghana holds a 10% carried interest.
The HBB properties lie along the southeastern flank of the Birimian-aged (lower Proterozoic) Ashanti Belt, along the same structural
trend as Wassa. The southwestern part of the Hwini-Butre property covers a syn-volcanic mafic intrusive that is bound to the east and
north by the Butre volcanic sequence. The Butre volcanic sequence, which also underlies the Benso property further north, mostly
comprises volcanic flows with minor meta sediment horizons. The main regional structural orientation trends northeasterly and
extensive north to northwest trending cross-cutting fracture systems are also well developed. The latter host much of the
mineralization in the district. Mineralization on the Hwini-Butre property is typically associated with shallow west-dipping narrow
quartz veins and their alteration halos, with coarse free gold associated with sulfides and within the quartz veins.
We initiated development of the Benso mine in late 2007. During 2008, the haul road was completed to Wassa, a truck maintenance
facility was completed, as was employee housing and offices. We began mining and shipping Benso ore to Wassa at the end of the
third quarter of 2008, and a total of 291,000 tonnes of ore averaging 4.14 g/t was hauled from Benso to the Wassa plant by
December 31, 2008.
An extension of the haul road 30 km south to the Hwini-Butre pits was commenced in the fourth quarter of 2008, and is expected to be
commissioned during the second quarter of 2009. Benso project capital expenditures totaled approximately $40 million during 2008,
and we expect to spend approximately $10 million on the Hwini-Butre road and pit development in 2009.
Wassa plant throughput was lower in the fourth quarter of 2008 than in earlier periods, due to ball mill repairs and to the higher clay
and moisture content of the initial ore from Benso which required blending with fresh Wassa ores. No significant metallurgical
difficulties were encountered with the Benso ore, and predicted recoveries were achieved from the tonnages processed to date.
EXPLORATION STAGE PROPERTIES IN GHANA
Prestea Underground
The Prestea Underground is an inactive underground gold mine located to the south of Bogoso and adjacent to the town of Prestea.
The property consists of two surface access shafts and extensive underground workings and support facilities. Access to the mine site
is via a paved road from Tarkwa and Accra maintained by the Government of Ghana.
From the 1870s to 2002 when mining ceased following an extended period of low gold prices, the Prestea Underground operations
produced approximately nine million ounces of gold, the second highest production of any mine in Ghana. The underground workings
are extensive, reaching depths of approximately 1,450 meters and extending along a strike length of approximately nine kilometers.
Underground workings can currently be accessed via two surface shafts, one near the town of Prestea (Central Shaft) and a second
approximately four kilometers to the southwest at Bondaye.
GSBPL now holds a 90% ownership in the Prestea Underground with the Government of Ghana holding a 10% ownership in Prestea
Underground as well as its 10% holding in GSBPL, resulting in an 81% beneficial ownership by Golden Star.
Exploration activities at the Prestea Underground in 2008 were limited to a surface infill drilling program targeting the Plant North
Main Reef Footwall on 25 meter drill spacing. This drilling was completed early in 2008, and our consultant completed a Mineral
Resource update for this target. Upon completion of the drilling and remodeling of this target the Prestea Underground was put on care
and maintenance. A $44.5 million impairment loss was recorded for this project at the end of 2008. See Item 7 Management’s
Discussion and Analysis of Operations below for additional discussion of the impairment.
Geology of Prestea Underground
The Prestea Underground deposits are located along the same Ashanti Trend structure as are our Bogoso deposits a few kilometers to
the north and our Prestea South deposits a few kilometers to the south with most of the gold mineralization found in a narrow tabular
fault zone which dips steeply to the northwest.
Akropong Trend Properties
The Akropong properties are located along a fault structure which roughly parallels the Ashanti Trend and is located approximately 20
km to the west of our Bogoso processing plant. Our exploration continues to focus on smaller satellite deposits which can easily be
trucked to Bogoso for processing as we have been doing with material from Pampe, located on the southern end of these properties.
We expect to drill several soil anomalies delineated in previous exploration programs at Joset-Moseaso and Afransi during 2009.
Dunkwa Properties
The Dunkwa Properties, which are located directly north of our Bogoso Mining lease consist of two prospecting licenses, Mansiso and
Asikuma, the latter hosting our Mampon ore deposit.
The Mansiso and Asikuma concessions were both flown as part of the VTEM airborne geophysical survey and, as with Bogoso and
Prestea, have been included in the 2008 interpretation and analysis of the VTEM data. The chargeability response from this survey has
enhanced the understanding of the major structures running through the property and several new targets have been identified which
we plan to follow up in 2009.
OTHER EXPLORATION STAGE PROPERTIES IN AFRICA
Mano River Joint Venture, Sierra Leone
In 2008 we concentrated our Sierra Leone exploration efforts on the Sonfon prospect located in north central Sierra Leone. We are
earning into this joint venture property with Mano River and expect to meet our expenditure requirements to hold a 51% interest, as of
the end of 2008. Exploration activities during 2008 intersected zones of massive sulfides exhibiting good gold grades and follow up
drilling on these zones is planned in 2009.
Cote d’Ivoire
The 2008 exploration programs focused on our Amélikia, Abengourou and Agboville concessions located in the south eastern portion
of Cote d’Ivoire adjacent to the Ghanaian border along northeast trending structures located to the west of the Sefwi greenstone belt in
Ghana. Between 2005 and 2007, we carried out a regional stream and laterite sampling program which identified two coincidental
stream and laterite gold anomalies on the Amelekia license. These two zones cover an area approximately 4.5 kilometers by 20 and 24
kilometers long. In addition, a smaller 4 kilometer by 8 kilometer coincident laterite and stream anomaly was also outlined on the
Abengourou license area. During 2009 we plan to follow up on these soil anomalies using tightly spaced soil sampling and
prospecting with the aim to have drill targets for the first quarter of 2010.
The Afema project was returned to its owner in December 2008 following our conclusion that the project was not viable.
Goulagou, Burkina Faso
We hold a 90% beneficial interest in the Goulagou and adjoining Rounga gold properties, which were acquired from St Jude along
with the HBB properties in late 2005, with a local Burkina Faso partner owning a 10% interest. The Government of Burkina Faso will
receive a statutory 10% carried interest upon the granting of a mining lease. The two properties are located approximately 100
kilometers west of Ouagadougou, the capital city of Burkina Faso, and 20 kilometers north of the city of Ouahigouya. Drilling
programs carried out by the prior owner and its predecessors identified several areas of gold mineralization including two parallel
zones on the Goulagou property – the Goulagou I and II deposits.
In October 2007, we granted Riverstone Resources Inc. (“Riverstone”) an option to purchase the Goulagou and Rounga concessions.
Exploration programs in 2008 were managed and implemented by Riverstone and mainly consisted of infill reverse circulation drilling
on the Goulagou concession. We expect that Riverstone will continue its exploration efforts during 2009.
In 2008, an engineering analysis indicated that only 100,000 ounces of gold resources could be economically recovered. A revised
cash flow model based on 100,000 mineable ounces, showed that total free undiscounted cash flow is now nil and not the $18 million
originally expected. Based on this analysis the project has been written off and an impairment charge recorded in the consolidated
statements of operations.
Deba and Tialkam Projects, Niger
The Deba and Tialkam gold properties in Niger were acquired along with the HBB properties from St. Jude in late 2005. We hold a
90% interest in the two exploration permits, subject to the 10% interest of the Government of Niger.
Soil sampling programs were carried out at both concessions in 2008 along with ground geophysics and 17,000 meters of drilling was
done at Tialkam. Licenses with respect to both concessions were renewed in 2008, and we subsequently reapplied for portions of the
properties surrendered, as required by Niger mining law, when the permits expired earlier in the year.
EXPLORATION STAGE PROPERTIES IN SOUTH AMERICA
Saramacca Property
The Saramacca property, located in Suriname, consists of three concessions totaling 536 square kilometers. The area is underlain by
lower Proterozoic greenstone rocks of the Paramaka and Armina formations which also host IamGold’s Gross Rosebel Mine and
Newmont’s Nassau gold project.
Since mid-2006, the Saramacca project has been operated as a joint venture between Golden Star and an exploration subsidiary of
Newmont. The joint venture’s 2008 exploration program focused on diamond core drilling on four separate anomalies including
Anomaly ‘M’, Pompoekampoe and Anomalies ‘S’ and ‘B’. An extensive regional geochemical soil grid sampling program was also
carried out on the western portion of the concession where stream sampling had defined gold anomalies.
During 2008, as in 2007, Newmont funded all of the exploration activities at Saramacca with Golden Star personnel managing the
project. It is expected that Newmont will take over active project management in 2009 once Newmont’s total spending reaches $6
million. Newmont will at that time acquire in a 51% ownership position. Typical dilution clauses apply if either party fails to
contribute its portion of approved budgets subsequent to Newmont acquiring its 51% interest. If either party’s interest drops below
20%, its ownership will convert to a 1.25% net smelter royalty interest in the venture.
Upon Newmont completing a feasibility study, Golden Star may (i) elect to participate relative to its joint venture interest at that time;
(ii) dilute its interest; or (iii) be assigned an automatic 1.25% net smelter royalty interest in the venture. If Golden Star elects to
maintain its interest, it may elect to have Newmont carry all Golden Star’s share of mine development costs. If this option is elected,
Golden Star would repay Newmont from 80% of its share of eventual mine earnings plus interest at LIBOR plus 2.75%. In addition,
Golden Star would receive an advance royalty of $5.00 per ounce of gold reported on the date that Newmont approves development of
a mine.
Paul Isnard
The Paul Isnard project is located in the western part of French Guiana, some 200 km west of Cayenne. An option agreement between
Golden Star and EURO Ressources S.A. (“EURO”) and a subsidiary of EURO provided Golden Star the right to acquire up to 100%
of the 275 square kilometer property via a series of option payments and exploration spending. As of the end of 2007 we had made all
of the requisite option payments and had met our spending target. Arrangements were underway to seek transfer of ownership of the
property to us in 2008. However, lawsuits between Golden Star Resources Ltd. and EURO involving disputes over ownership of the
property under the option agreement, which are still pending, and IAMGOLD’s late 2008 acquisition of EURO, have interrupted
completion of the transfer process.
The Paul Isnard project area covers rocks of the Lower Proterozoic Paramacca formation which contain gold mineralization in the
form of pyritic disseminated zones or stringer zones and sulfide-rich shear zones, which can be reasonably correlated between the
current widely spaced 200 meter drill sections from our late 1990’s drilling.
In February 2008, as part of a feasibility study of Paul Isnard’s Montagne d’Or deposit, a NI 43-101 preliminary assessment report
was finalized by an external consultant. The preliminary assessment concluded that further exploration work was required to increase
the overall resources of the project before advancing to a pre-feasibility assessment. The results of the 2008 study estimated an
Inferred Mineral Resource of 9.2 million tonnes grading 2.51 g/t, constrained within a $640 per ounce gold price optimized pit shell.
In early 2008 additional geochemical studies and airborne geophysical surveys were completed, indicating extensions of the
geophysical anomaly characterized at Montagne d’Or to the west of the original geochemical anomaly and where most of the core
drilling was done in the late 1990s. Our 2008 exploration program was limited following the French government’s decision to halt the
authorization of the development of IAMGOLD’s Camp Caïman mining project in eastern French Guiana pending the establishment
of a new ‘Mining Scheme’ for the entire country.
Under the option agreement with EURO, once we acquire the property, we have agreed to pay a royalty to EURO on all future gold
production, if any, from the Paul Isnard property up to 5.0 million ounces. The royalty varies from 10% of the difference between the
market price of gold and $400 for gold sales up to 2.0 million ounces, and five percent of the same for gold sales between 2.0 million
and 5.0 million ounces.
Brazil
During 2008 Golden Star created an exploration subsidiary in Brazil known as Caystar Exploracao Mineral Brasil Limitada. Golden
Star has been actively acquiring ground in Brazil since 2004, and we currently hold four active project areas in two states of Brazil
(Minas Gerais and Mato Grosso).
ITEM 3.
LEGAL PROCEEDINGS
On August 29, 2008 B.D. Goldfields, Ltd., a Ghanaian registered company, and a shareholder of B.D. Goldfields, Ltd. filed suit in the
United States District Court of the District of Colorado against Golden Star Resources Ltd. and our subsidiary St. Jude Resources Ltd.
The plaintiffs are challenging the validity the various concession contracts and settlements related to the Hwini-Butre gold property in
Ghana. We believe this action is frivolous and without merit, and we intend to vigorously defend against this action on numerous
grounds. We have asserted that the United States court is without jurisdiction over the matter and that the claims asserted by the
plaintiffs are barred by virtue of various settlements and judgments of the Ghanaian Courts. The Ghanaian government has already
issued a lease to St. Jude’s nominee in connection with such concession. Our initial motion to dismiss was presented to the Court on
November 6, 2008. The plaintiffs have opposed the motion to dismiss, and we replied in support of the motion to dismiss on
January 7, 2009. The Court has scheduled a hearing on the motion to dismiss for March 17, 2009. A decision on the motion to dismiss
likely will be made at or after the hearing.
We are also engaged in other routine litigation incidental to our business none of which is deemed to be material. No material legal
proceedings involving us or our business are pending, or, to our knowledge, contemplated, by any governmental authority.
ITEM 4.
No matters were submitted to a vote of security holders during the fourth quarter of 2008.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Our common shares trade on the Toronto Stock Exchange (“TSX”) under the trading symbol “GSC”, on the NYSE Alternext US
(formerly known as the American Stock Exchange) under the symbol “GSS” And on the Ghana Stock Exchange under the symbol
“GSR”. As of February 24, 2009, 236,005,311 common shares were outstanding and we had 1,037 registered shareholders. On
February 24, 2009, the closing price per share for our common shares as reported by the TSX was Cdn$1.87 and as reported by the
NYSE Alternext US exchange was $1.51.
The following table sets forth, for the periods indicated, the high and low market closing prices per share of our common shares as
reported by the TSX and the NYSE Alternext US.
2008
First Quarter.............................................................................................
Second Quarter ........................................................................................
Third Quarter ...........................................................................................
Fourth Quarter..........................................................................................
2007
First Quarter.............................................................................................
Second Quarter ........................................................................................
Third Quarter ...........................................................................................
Fourth Quarter..........................................................................................
Toronto Stock Exchange
Cdn$
Low
Cdn$
High
Toronto Stock Exchange
Cdn$
Low
Cdn$
High
4.24
3.85
2.74
1.76
5.37
5.54
4.38
4.18
NYSE Alternext US
$
$
Low
High
4.32
3.83
2.75
1.66
3.18
2.57
1.14
0.40
American Stock Exchange
$
High
$
Low
4.56
4.90
4.28
4.28
2.82
3.60
2.92
2.81
3.14
2.62
1.22
0.50
3.32
3.78
3.12
2.82
We have not declared or paid cash dividends on our common shares since our inception and we expect for the foreseeable future to
retain all of our earnings from operations for use in expanding and developing our business. Future dividend decisions will consider
then current business results, cash requirements and our financial condition.
Performance Graph and Table
The following graph and table illustrates the cumulative total shareholder return on the common shares for the fiscal years ended
December 31, 2003 through 2008, together with the total shareholder return of the S&P/TSX Composite Index, and the AMEX Gold
Bug Index for the same period. The graph and table assumes an initial investment of Cdn$100 at December 31, 2003 and is based on
the trading prices of the common shares for the periods indicated. Because we did not pay dividends on our common shares during the
measurement period, the calculation of the cumulative total shareholder return on the common shares does not include dividends.
2003
2004
2005
2006
2007
2008
Golden Star Resources Ltd.
S&P /TSX Composite Index
Dollar Value................................................................
Annualized Return Since Base Year ................................
Return Over Previous Year ................................
$ 100.00 $ 53.57
$ 34.16
$ 38.16
$ 34.67
$ 13.60
-46.43%
-46.43%
-41.55%
-36.23%
-27.47%
11.70%
-23.27%
-9.16%
-32.91%
-60.78%
$ 100.00 $ 104.74
$ 123.67
$ 141.58
$ 128.66
$ 103.60
Dollar Value................................................................
Annualized Return Since Base Year ................................
Return Over Previous Year ................................
AMEX Gold Bug Index (1)
Dollar Value................................................................
Annualized Return Since Base Year ................................
Return Over Previous Year ................................
$ 100.00 $
4.74%
4.74%
11.21%
18.08%
12.29%
14.48%
6.50%
-9.12%
0.71%
-19.48%
82.54
-17.46%
-17.46%
$ 102.81
$ 125.54
$ 128.85
$ 117.96
1.39%
24.55%
7.88%
22.11%
6.54%
2.63%
3.36%
-8.45%
(1)
Prior to 2007, we utilized the Canadian Gold Index. This index is no longer published. For 2007 and afterward, we utilized the
AMEX Gold Bug Index, which is comparable to the Canadian Gold Index.
RECENT SALE OF UNREGISTERED SECURITIES
No sales of unregistered securities occurred during 2008.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax considerations that apply to the holding and disposition of
our common shares. This summary only applies to a holder who is for Canadian income tax purposes not resident in Canada, is
resident in the United States of America under the provisions of the Canada-United States Income Tax Convention (1980) (the
“Treaty”) and holds our common shares as capital property.
This summary is based on the current provisions of the Income Tax Act (Canada) and the regulations there under (the “Tax Act”) and
all amendments to the Tax Act publicly proposed by the Government of Canada to the date hereof. This summary is also based on the
current provisions of the Treaty and our understanding of the current publicly available administrative and assessing practices
published in writing by the Canada Revenue Agency.
It is assumed that each proposed amendment will be enacted as proposed and there is no other relevant change in any governing law,
although no assurance can be given in these respects. This summary does not otherwise take into account any change in law or
administrative practice, whether by judicial, governmental, legislative or administrative action, nor does it take into account
provincial, territorial or foreign income tax consequences, which may vary from the Canadian federal income tax considerations
described herein.
A particular US resident person may not be entitled to benefits under the Treaty if the "limitations of benefits" provisions of the Treaty
apply to the particular US resident person. The limitation of benefits provisions under the Treaty are complex and US residents are
advised to consult their own tax advisors in this regard.
Under the Treaty members of a limited liability corporation created under the limited liability company legislation in the U.S. and
treated as a partnership or disregarded entity under US tax law (“LLC”) (and holders of interests in similarly fiscally transparent US
entities) may be entitled to benefits under the Treaty in certain circumstances provided that the members of the LLC are taxed in the
United States on any income, profits or gains earned through the LLC in the same way they would be if they had earned it directly.
Special rules, which are not discussed in this summary, may apply if you are an insurer carrying on business in Canada and elsewhere,
or a financial institution as defined by section 142.2 of the Tax Act. If you are in any doubt as to your tax position, you should consult
with your tax advisor.
This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder
of the common shares and no representation with respect to Canadian federal income tax consequences to any holder of common
shares is made herein. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO
THE INCOME AND OTHER TAX CONSEQUENCES ARISING IN THEIR PARTICULAR CIRCUMSTANCES.
Taxation of Dividends
Dividends paid or credited (or deemed to be paid or credited) by us to a holder of one or more common shares will be subject to
Canadian non-resident withholding tax at the rate of 25% on the gross amount of the dividend. Under the Treaty, the rate of
withholding tax is reduced to 15% if the holder is the beneficial owner of the dividends or 5% if the holder is a company that owns at
least 10% of the company’s voting stock and beneficially owns the dividend. Dividends paid to religious, scientific, charitable and
similar tax exempt organizations and pension organizations that are resident and exempt from tax in the U.S. and that have complied
with the administrative procedures specified in the Treaty are exempt from this Canadian withholding tax.
Taxation of Capital Gains
Gains realized by a holder on a sale, disposition or deemed disposition of our common shares will not be subject to tax under the Tax
Act unless the common shares constitute “taxable Canadian property” within the meaning of the Tax Act at the time of the sale,
disposition or deemed disposition (including a deemed disposition upon death of a holder). Our common shares are not “taxable
Canadian property” provided that they are listed on a designated stock exchange (which includes the TSX), and that neither you , nor
one or more persons with whom the you did not deal at arm’s length, alone or together, at any time in the five years immediately
preceding the disposition, owned 25% or more of the issued shares of any class or series of our capital stock. Even if our common
shares are taxable Canadian property to you, under the Treaty you will generally be exempt from paying Canadian income tax on any
gain provided that you are a resident of the United States for the purposes of the Treaty (and are otherwise eligible for the benefits of
the Treaty), and further provided that the value of our common share is not derived principally from real property situated in Canada.
Currently, our common shares do not derive their value principally from real property situated in Canada and therefore capital gains
realized from the disposition of our common shares would be exempt from tax by virtue of the provisions of the Tax Treaty; however,
the determination as to whether Canadian tax would be applicable on a sale, disposition or deemed disposition of common shares must
be made at the time of that sale, disposition or deemed disposition.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
There are certain U.S. federal income tax risks associated with investments in Golden Star.
Holders of our common shares, warrants or options to purchase our common shares, or convertible debentures (collectively, “Equity
Securities”) who are U.S. taxpayers should consider that we could be considered to be a “passive foreign investment company”
(“PFIC”) for U.S. federal income tax purposes. Although we believe that we were not a PFIC for 2008, and do not expect to become a
PFIC in 2009, the tests for determining PFIC status depend upon a number of factors, some of which are beyond our control, and can
be subject to uncertainties, and we cannot assure you that we will not be a PFIC. We do not undertake any obligation to advise holders
of our Equity Securities as to our PFIC status for any year. If we are a PFIC for any year, any holder of our Equity Securities who is a
U.S. person for U.S. income tax purposes (a “U.S. Holder”) and whose holding period for those Equity Securities includes any portion
of a year in which we are a PFIC generally would be subject to a special adverse tax regime in respect of “excess distributions.”
Excess distributions include certain distributions received with respect to PFIC shares in a taxable year. Gain recognized by a
U.S. Holder on a sale or other transfer of our Equity Securities (including certain transfers that would otherwise be tax free) also
would be treated as an excess distributions. Such excess distributions (including gains treated as excess distributions) would be
allocated ratably to the U.S. Holder’s holding period. For these purposes, the holding period of common shares acquired through
either an exercise of warrants or options or a conversion of debentures includes the holder’s holding period in those warrants, options,
or convertible debentures. The current year’s allocation would be includible as ordinary income in the current year. Prior year’s
allocations would be taxed at the highest marginal rate applicable to ordinary income for each such year (regardless of the holder’s
actual marginal tax rate for the taxable year, and without reduction for any losses or carryforwards) and would be subject to interest
charges to reflect the value of the U.S. income tax deferral.
Elections may be available to mitigate the adverse tax rules that apply to PFICs (the so-called “QEF” and “mark-to-market” elections),
but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income. We have
not decided whether we would provide to U.S. Holders of our common shares annual information that would be necessary to make the
QEF election. The QEF and mark-to-market elections are not available to U.S. Holders with respect to warrants or options to acquire
our common shares or with respect to convertible debentures.
Additional special adverse rules also apply to investors who are U.S. Holders who own our common shares if we are a PFIC and have
a non-U.S. subsidiary that is also a PFIC. Special adverse rules that could impact estate planning goals could apply to our Equity
Securities if we are a PFIC.
ITEM 6.
SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from our audited consolidated financial statements for the years ended
December 31, 2008, 2007, 2006, 2005 and 2004, and should be read in conjunction with those financial statements and the notes
thereto. The consolidated financial statements have been prepared in accordance with Canadian GAAP. Selected financial data derived
in accordance with US GAAP has also been provided and should be read in conjunction with Note 25 to the financial statements.
Reference should also be made to “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Summary of Financial Condition
(Amounts in thousands except per share data)
Canadian GAAP
Working capital..............................................................................................
Current assets................................................................................................
Total assets................................................................................................
Current liabilities ...........................................................................................
Long-term liabilities.......................................................................................
Shareholder’s equity ......................................................................................
1,651 $
91,973
696,202
90,322
175,810
430,070
$
As of Dec.
31, 2008
As of Dec.
31, 2007
As of Dec.
31, 2006
As of Dec.
31, 2005
72,362 $
146,599
792,548
74,237
167,181
545,172
28,258 $
90,534
663,774
62,276
131,974
462,100
91,974 $
132,789
564,603
40,815
124,919
392,240
As of Dec.
31, 2004
61,366
78,846
252,160
17,480
10,367
217,960
For the
Year
Ended Dec.
31, 2008
Canadian GAAP
257,355 $
Revenues ................................................................................................
(120,071)
Net income/(loss)....................................................................................
Net income/(loss) per share – basic ........................................................
(0.509)
$
For the
Year
Ended Dec.
31, 2007
175,614 $
(36,404)
(0.159)
For the
Year
Ended Dec.
31, 2006
128,690 $
64,689
0.312
For the
Year
Ended Dec.
31, 2005
For the
Year
Ended Dec.
31, 2004
95,465 $
(13,351)
(0.094)
65,029
2,642
0.019
As of Dec.
US GAAP
31, 2008
Working capital ......................................................................................
Current assets .........................................................................................
Total assets .............................................................................................
Current liabilities ....................................................................................
Long-term liabilities ................................................................
Shareholder’s equity ................................................................
1,651 $
91,973
663,444
90,322
193,871
379,151
$
As of Dec.
31, 2007
As of Dec.
31, 2006
As of Dec.
31, 2005
As of Dec.
31, 2004
71,407 $
146,599
728,977
75,192
202,870
449,278
21,383 $
90,534
606,095
69,151
129,624
404,418
91,794 $
132,789
522,443
40,815
135,832
343,832
61,366
78,846
219,972
17,480
22,432
176,161
For the
Year
Ended Dec.
31, 2008
US GAAP
257,355 $
Revenues ................................................................................................
(73,717)
Net income/(loss)....................................................................................
(0.313)
Net income/(loss) per share — basic ......................................................
$
For the
Year
Ended Dec.
31, 2007
175,614 $
(41,759)
(0.182)
For the
Year
Ended Dec.
31, 2006
128,690 $
57,875
0.279
For the
Year
Ended Dec.
31, 2005
102,237 $
(24,470)
(0.170)
For the
Year
Ended Dec.
31, 2004
65,029
47,708
0.345
Note: 2004 and 2005 US GAAP figures have been restated to reflect the correction of the accounting treatment of warrants issued in
currencies other than US$.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying audited consolidated financial statements
and related notes. The financial statements have been prepared in accordance with Canadian GAAP. For a reconciliation to accounting
principles generally accepted in the United States (“US GAAP”), see Note 25 to the consolidated financial statements. This
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information available to
February 24, 2009.
OVERVIEW OF GOLDEN STAR
We are a Canadian federally incorporated international gold mining and exploration company producing gold in Ghana, West Africa.
We also conduct gold exploration in West Africa and in South America. Golden Star Resources Ltd. was established under the
Canada Business Corporations Act on May 15, 1992 as a result of the amalgamation of South American Goldfields Inc., a corporation
incorporated under the federal laws of Canada, and Golden Star Resources Ltd., a corporation originally incorporated under the
provisions of the Alberta Business Corporations Act on March 7, 1984 as Southern Star Resources Ltd. Our principal office is located
at 10901 West Toller Drive, Suite 300, Littleton, Colorado 80127, and our registered and records offices are located at 66 Wellington
St. W, 42nd floor, Box 20, Toronto Dominion Bank Tower - Toronto Dominion Centre, Toronto, ON M5K 1N6. Our fiscal year ends
on December 31.
We own controlling interests in several gold properties in southern Ghana:
•
•
Through a 90% owned subsidiary, Golden Star Bogoso/Prestea Limited (“GSBPL”), we own and operate the
Bogoso/Prestea gold mining and processing operations (“Bogoso/Prestea”) located near the town of Bogoso, Ghana. In
July 2007, we commissioned a nominal 3.5 million tonnes per year processing facility at Bogoso that uses bio-oxidation
technology to treat refractory sulfide ore. In addition Bogoso/Prestea has a carbon-in-leach processing facility which we
expect to use to treat oxide ores as they are available. Bogoso/Prestea produced and sold 120,216 ounces of gold in 2007
and 170,499 ounces of gold in 2008.
Through another 90% owned subsidiary, Golden Star (Wassa) Limited (“GSWL”), we own and operate the Wassa open-
pit gold mine and carbon-in-leach processing plant (“Wassa”), located approximately 35 kilometers east of
Bogoso/Prestea. The design capacity of the carbon-in-leach processing plant at Wassa is nominally 3.0 million tonnes per
annum but varies depending on the ratio of hard and soft ore. Wassa produced and sold 126,062 ounces of gold in 2007
and 125,477 ounces of gold in 2008. GSWL also owns the Hwini-Butre and Benso concessions (the “HBB properties”) in
southwest Ghana. We spent approximately $40 million on the Benso property during 2008 developing the Benso mine
which began shipping ore to Wassa in the third quarter of 2008. An extension of the haul road from Benso to Hwini-Butre
commenced in the fourth quarter of 2008 and is expected to be commissioned in the second quarter of 2009. The Hwini-
Butre and Benso concessions are located approximately 80 and 50 kilometers, respectively, by road south of Wassa.
We also hold interests in several gold exploration projects in Ghana and elsewhere in West Africa including Sierra Leone, Burkina
Faso, Niger and Côte d’Ivoire, and hold and manage exploration properties in Suriname, Brazil and French Guiana in South America.
All of our operations, with the exception of certain exploration projects, transact business in US dollars and keep financial records in
US dollars. Our accounting records are kept in accordance with Canadian GAAP. We are a reporting issuer or the equivalent in all
provinces of Canada and in the United States and file disclosure documents with the Canadian securities regulatory authorities and the
United States Securities and Exchange Commission.
NON-GAAP FINANCIAL MEASURES
In this Form 10-K, we use the terms “total operating cost per ounce,” “total cash cost per ounce” and “cash operating cost per ounce.”
Total operating cost per ounce is equal to Cost of Sales for the period, as found in our statements of operations, after adjusting for
inventory write-offs and operations-related foreign currency (gains)/losses, divided by the ounces of gold sold in the period. Cost of
Sales include all mine-site operating costs, including the costs of mining, processing, maintenance, work-in-process inventory changes
including inventory write-offs and adjustments, mine-site overhead as well as production taxes, royalties, mine site depreciation,
depletion, amortization, asset retirement obligation accretion and by-product credits but does not include exploration costs, corporate
office general and administrative expenses, impairment charges, corporate business development costs, gains and losses on asset sales,
gains and losses on foreign currency conversions, interest expense, mark-to-market gains and losses on derivatives, gains and losses
on investments and income tax.
Total cash cost per ounce for a period is equal to “Total operating costs” for the period, as found in the table below, less “Mining
related depreciation and amortization” and “Accretion of asset retirement obligations” costs for the period, divided by the number of
ounces of gold sold during the period.
Cash operating cost per ounce for a period is equal to “Total cash costs” for the period less production royalties and production taxes,
divided by the number of ounces of gold sold during the period.
The following table shows the derivation of these measures:
Mining operations costs ......................................................................................................................
Royalties .............................................................................................................................................
Costs (to)/from metals inventory ................................................................................................
Mining related depreciation and amortization ....................................................................................
Accretion of asset retirement obligations............................................................................................
Cost of Sales – GAAP
Less stockpile inventory write-offs................................................................................................
Less operations-related foreign exchange (gains)/losses ................................................................
Total operating costs
$
Ounces sold
Derivation of cost per ounce measures:
Total operating costs ($/oz) ..............................................................................................................
Less depreciation and amortization ($/oz) ..........................................................................................
Less accretion of asset retirement obligations ($/oz) ................................................................
Total cash cost per ounce .................................................................................................................
Less royalties ($/oz)............................................................................................................................
Cash operating cost per ounce ................................................................................................
Mining operations costs ......................................................................................................................
Royalties .............................................................................................................................................
Costs (to)/from metals inventory ................................................................................................
Mining related depreciation and amortization ....................................................................................
Accretion of asset retirement obligations............................................................................................
$
Cost of sales – GAAP ........................................................................................................................
Less stockpile inventory write-off ................................................................................................
Less operations-related foreign exchange (gains)/losses ................................................................
Total operating costs.........................................................................................................................
$
Ounces sold................................................................................................................................
Derivation of cost per ounce measures:
Total operating costs ($/oz) ..............................................................................................................
Less depreciation and amortization ($/oz) ..........................................................................................
Less accretion of asset retirement obligations ($/oz) ................................................................
Total cash cost per ounce .................................................................................................................
Less royalties ($/oz)............................................................................................................................
Cash operating cost per ounce ................................................................................................
2008
Bogoso/
Prestea
Wassa
Combined
71,271 $ 149,040 $ 220,311
7,727
3,262
9,670
(1,153)
61,212
29,879
778
385
299,698
103,644
—
(16,436)
(1,386)
(610)
281,877
103,035
4,465
10,823
31,333
393
196,054
(16,436)
(776)
178,842
125,427
170,499
295,926
821
238
3
580
26
554
1,049
184
2
863
26
837
953
207
3
743
26
717
2007
Bogoso/
Prestea
Wassa
56,313 $
2,674
(381)
20,503
328
79,438
—
(53)
Combined
96,722 $ 153,035
5,274
2,600
(5,003)
(4.622)
35,568
15,065
1,062
734
189,936
110,499
—
—
14
67
79,384 $ 110,585 $ 189,969
126,062
120,216
246,278
630
163
3
464
21
443
920
125
6
788
22
767
771
144
4
623
21
601
Total cash cost per ounce and cash operating cost per ounce should be considered as non-GAAP financial measures as defined in SEC
Regulation S-K Item 10 and applicable Canadian securities laws and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. There are material limitations associated with the use of such non-
GAAP measures. Since these measures do not incorporate revenues, changes in working capital and non-operating cash costs, they are
not necessarily indicative of operating profit or cash flow from operations as determined under GAAP. Changes in numerous factors
including, but not limited to, mining rates, milling rates, gold grade, gold recovery, costs of labor, consumables and mine site general
and administrative activities can cause these measures to increase or decrease. We believe that these measures are the same as, or
similar to, the measures of other gold mining companies, but may not be comparable to similarly titled measures in every instance.
BUSINESS STRATEGY AND DEVELOPMENT
Our business and development strategy has been focused primarily on the acquisition of producing and development-stage gold
properties in Ghana and on the exploration, development and operation of these properties.
We acquired Bogoso in 1999 and have operated a nominal 1.5 million tonne per annum carbon-in-leach (“CIL”) processing plant most
of the time since then to process oxide and other non-refractory ores (“Bogoso oxide plant”). In 2001, we acquired Prestea and mined
surface deposits at Prestea from late 2001 to late 2006. In late 2002, we acquired Wassa, and constructed a new nominal 3.0 million
tonne per annum CIL processing plant at Wassa, which began commercial operation in April 2005. In July 2007, we completed
construction and development of a new nominal 3.5 million tonnes per annum processing facility at Bogoso/Prestea that uses bio-
oxidation technology to treat refractory sulfide ore (“Bogoso sulfide plant”).
In late 2005, we acquired the HBB properties consisting of the Benso and Hwini-Butre properties. Development activities were
initiated in late 2007 at Benso, and in the third quarter of 2008 Benso began trucking ore to the Wassa plant for processing.
Our overall objective is to grow our business to become a mid-tier gold producer with an annualized production rate in excess of
500,000 ounces. We continue to evaluate potential acquisition and merger opportunities that could further increase our annual gold
production. However, we presently have no agreement or understanding with respect to any specific potential transaction.
In addition to our gold mining and development activities, we actively explore for gold in West Africa and South America, investing
approximately $15.8 million on such activities during 2008 and $13.9 million in 2007. We are conducting regional reconnaissance
projects in Ghana, Cote d’Ivoire and Sierra Leone and have drilled more advanced targets in Ghana, Niger and Burkina Faso. We are
also evaluating a property in French Guiana and participating in a joint venture in Suriname.
SIGNIFICANT TRENDS AND EVENTS DURING 2008
Bogoso/Prestea Operations
Bogoso/Prestea produced and sold 170,499 ounces of gold during 2008, up from 120,216 ounces in 2007 and 103,792 ounces in 2006.
The improvements in gold output reflects a more stable and reliable operational status at the Bogoso sulfide plant following resolution
of various equipment issues, including replacement of almost of the bio-oxidation tank agitators and gear boxes earlier in 2008. The
Bogoso oxide plant was idled during most of the third and fourth quarters of 2008 awaiting oxide ores from the Prestea South
development project which is now scheduled to start up in late 2009.
Benso Development
The Benso mine development was substantially completed in the third quarter of 2008, and production mining ramped up to an
average of 3,000 tonnes per day during the fourth quarter of 2008. A total of 291,000 tonnes of ore averaging 4.14 g/t was hauled from
Benso to the Wassa plant by December 31, 2008. It is expected that the deliveries of approximately 3,500 tonnes per day of higher
grade Benso ore to the Wassa plant over the next several quarters will result in material improvements in Wassa’s operational and
financial results.
Change in Bogoso/Prestea Mineral Reserves
Re-estimation of Mineral Reserves at Bogoso/Prestea at the end of 2008 resulted in a 39.6% drop in ounces of reserves from the end
of 2007. In addition to mining depletion during 2008, a major factor contributing to the drop was the substantial increases in cash
mining and processing costs during 2008. The costs of electric power, fuel and other operating consumables also increased
substantially in 2008. Furthermore, sulfide gold recovery rates were revised downward in the December 31, 2008 Mineral Reserve
estimates to better reflect experience to date at the Bogoso sulfide plant.
Impairments
In response to volatile gold prices and increases in operating costs during 2008 our assets were evaluated for impairment. Results of
the analysis identified a number of impaired assets at the end of 2008 and the resulting write-offs totaled $68.4 million. Impaired
assets included the Prestea Underground project, the Goulagou exploration project and portions of the Prestea South project and Niger
projects. In addition, the transition ore stockpile at Bogoso was written down by $16.4 million to its net realizable value. Increases in
cash operating costs, most notably electric power costs, and lower gold prices were the major contributing factors in the impairments
and inventory adjustment. Pre-feasibility study results obtained in mid-2008 further contributed to the Prestea Underground
impairment.
Energy Prices
In 2008, the Public Utilities Regulatory Committee (“PURC”) of Ghana increased electric power rates for high voltage electric power
customers effective July 1, 2008. The new rate in Ghana Cedis was equivalent to approximately $0.178 per kilowatt hour, up from
$0.10 per kilowatt hour prior to the increase. Since the power rate is stated in Ghana Cedis, recent weakening of the Ghana Cedis has
helped to alleviate a portion of this power price increase. We, along with the other major gold producers in Ghana, are working with
the Volta River Authority (“VRA”), our power provider, to agree on a formula for future power prices that more closely reflects the
actual cost of power generation for the VRA. During the fourth quarter of 2008 diesel fuel prices began to decline reflecting
decreasing world crude oil prices. Fuel is one of our largest cost factors and the price drop, if continued, should have a beneficial
impact on our unit costs.
Gold Prices
Gold prices have generally trended upward during the last seven years, from a low of $260 per ounce in 2001 to a high of $1,011 per
ounce in March 2008. Since March 2008, and especially after mid-2008, gold price volatility increased with prices fluctuating in a
wide band between $700 and $950 per ounce. The realized gold price for our shipments averaged $870 per ounce during 2008, as
compared to $713 per ounce in 2007.
Prestea South
We continue to seek the environmental permits which would allow surface mining at the Prestea South gold deposits southeast of the
town of Prestea. Assuming timely receipt of the permits, we expect to begin developing the Prestea South deposits in 2009 and plan to
commence mining later in the year. The Prestea South oxide ore will be transported to Bogoso where it will be processed through the
Bogoso oxide plant, and sulfide ores will be moved to Bogoso and processed at the Bogoso sulfide plant.
Management Changes
In March 2008, Mr. Tom Mair was appointed President and CEO and as a member of the Board of Directors. Mr. Mair previously
served as Interim President and CEO since January 1, 2008 and as Senior Vice President and Chief Financial Officer from February
2007 to December 2007. In April 2008, Mr. Scott Barr was appointed as Executive Vice President and Chief Operating Officer.
Mr. John Labate was appointed Senior Vice President and Chief Financial Officer effective August 20, 2008.
Ghana Stock Exchange Listing and Share Offering
In February 2008, our common shares were listed on the Ghana Stock Exchange in Accra to support the further growth of the Ghana
Stock Exchange and to allow our employees and stakeholders in Ghana an opportunity to invest in Golden Star. In conjunction with
the listing, we completed an offering of 1,881,630 Golden Star common shares to investors in Ghana and Europe at a price of $3.10
(3.0 Cedis) per share. All shares issued are tradable on the Toronto Stock Exchange and the NYSE Alternext US stock exchange as
well as on the Ghana Stock Exchange.
Illegal Mining
As with most gold mining operations in Ghana, illegal mining is occurring on some of our properties, including Prestea South and
Hwini-Butre. We have brought this situation to the attention of the local and national governmental authorities. While illegal mining
has had minimal impact at our active mining operations so far, there is increasing amounts of illegal mining activity on our properties
and it is occurring closer to our operating mines than in the past.
International Financial Reporting Standards
The Canadian Accounting Standards Board recently confirmed January 1, 2011 as the date International Financial Reporting
Standards (“IFRS”) will replace current Canadian GAAP for publicly traded companies in Canada. In response we are currently
developing an IFRS change-over plan. Towards this end we have retained a qualified consulting team to oversee and effect the
conversion process. It is expected that the plan will take into consideration, among other things:
•
•
•
•
•
•
Identification of differences in Canadian GAAP and IFRS accounting policies and their impact on our consolidated
financial statements;
Selection of our continuing IFRS policies;
Changes in note disclosures;
Information technology and data system requirements;
Disclosure controls and procedures, including investor relations and external communications plans related to the IFRS
conversion;
Identification of impacts of IFRS on internal controls over financial reporting;
•
•
Financial reporting expertise requirements, including training of personnel; and
Impacts on other business activities that may be influenced by GAAP measures, such as debt covenants;
It is not possible at this time to quantify the impact of these factors.
Progress to Date
At December 31, 2008, the company has completed the planning phase of the project of the initial diagnostic between Canadian
GAAP and IFRS. While the effects of IFRS have not yet been fully determined, the Company has identified a number of key areas
where it is likely to be impacted by changes in accounting policy. These include:
•
•
•
•
•
Stock Based Compensation
Property, plant and equipment
Mine Property and Deferred Exploration
Impairment of assets
Presentation of financial statements, including presentation of minority interests
A detailed diagnostic is underway, and no decisions have yet been made with regard to accounting policy choices.
RESULTS OF OPERATIONS – 2008 COMPARED TO 2007
Consolidated Results
Our consolidated net loss totaled $120.1 million or $0.509 per share for 2008 as compared to a net loss of $36.4 million or $0.159 per
share in 2007. Impairment losses, negative operating margins and an inventory adjustment were the major factors contributing to the
increase in net loss as compared to prior years. Impairment write-offs totaled $68.4 million and included write-offs of the Prestea
Underground, the Goulagou exploration project in Burkina Faso, a portion of the Prestea South project at Bogoso and the Niger
exploration projects. Our mine operating margin was a negative $42.3 million, which included a $16.4 million net realizable value
adjustment which added $16.4 million to mine operating costs. Increases in cash operating costs, most notably electric power costs
and lower gold prices in the fourth quarter, were the major factors contributing to the impairments and inventory adjustment. The
results of a pre-feasibility study of the Prestea Underground, completed in mid-2008, further contributed to the Prestea Underground
impairment.
While gold sales were 49,649 ounces above the 2007 level, and our average realized gold price was up $157 per ounce, increases in
operating costs more than offset the improved revenues yielding a mine operating margin loss approximately $28.0 million larger than
the 2007 operating margin loss. The increase in revenues versus 2007 was related mostly to higher gold prices and to a full year of
output at the Bogoso sulfide plant in 2008 as compared to a half year in 2007 following its July 2007 plant in-service date.
Operating costs were significantly higher in 2008 as compared to 2007. Recognition of a full year’s operating costs at the Bogoso
sulfide plant in 2008 versus only six months of costs in 2007 was responsible for much of the operating cost increase. At the same
time, several of our key operating inputs at both mines experienced significant cost increases in 2008. Electric power costs increased
from $0.06 per kilowatt hour in early 2007 to approximately $0.10 per kilowatt hour in late 2007 and to approximately $0.178 per
kilowatt hour after June 30, 2008. Similarly, fuel costs trended up during most of 2008 reaching a high of $1.37 per liter by October.
Our fuel costs averaged $1.21 per liter in 2008, up from $0.92 per liter in 2007. Several other key inputs saw similar significant
increases during 2008 including labor costs.
SUMMARY OF FINANCIAL RESULTS
Gold sales (oz) ................................................................................................................................
Average realized price ($/oz)...................................................................................................................
Revenues ($ in thousands) .......................................................................................................................
Cash flow provided by operations ($ in thousands) .................................................................................
Net income/(loss) ($ in thousands) ................................................................................................
Net income/(loss) per share – basic ($)................................................................................................
2008
2007
295,927 246,278 201,406
607
257,355 175,614 122,586
30,043
5,398
64,689
0.312
(36,404)
(0.159)
(120,071)
(0.509)
6,670
713
870
2006
General and administrative costs increased by $1.4 million to $15.2 million in 2008. The increase is primarily attributable to the cost
of professional fees and severance costs related to management changes.
Interest expense totaled $14.6 million during 2008, up from $6.0 million in 2007. Two factors contributed to the increase. First was
the fact that most of the interest expense in the first half of 2007 was capitalized as a cost of the Bogoso sulfide plant prior to its
July 1, 2007 in-service date. Secondly during 2007 most of the interest expense was related to $50.0 million of convertible notes
which were repaid in November 2007 and replaced with $125.0 million of convertible debentures. A $7.1 million loss on debt
restructuring was incurred in November 2007 upon the redemption of the $50 million of convertible notes.
In response to lower gold prices near the end of 2008, several cost cutting measures were implemented company-wide including
reductions in the consumption rate of various key reagents and other items including labor force reductions. At the same time
commodity prices began falling, lowering costs for fuel and various chemical reagents. As a result of our cost reduction programs and
declining consumable prices, fourth quarter cash costs fell below levels experienced earlier in 2008, and we expect this trend to
continue into 2009.
Bogoso/Prestea Operations 2008 compared to 2007
Bogoso/Prestea gold shipments increased to 170,499 ounces in 2008 at an average price of $873 per ounce, up from 120,216 ounces in
2007 at an average price of $720 per ounce. The large increase in 2008 Bogoso/Prestea gold shipments reflects the fact that the 2008
shipments include a full year of sulfide plant output while the 2007 amount was for only six months of 2007 following the sulfide
plant’s July 1, 2007 in-service date.
BOGOSO/PRESTEA OPERATING RESULTS
Ore mined refractory (t) ................................................................................................................
Ore mined non-refractory .............................................................................................................
Total ore mined (t) ........................................................................................................................
Waste mined (t).............................................................................................................................
Refractory ore processed (t)................................................................................................
Refractory ore grade (g/t)..............................................................................................................
Gold recovery – refractory ore (%)...............................................................................................
Non-refractory ore processed (t) ................................................................................................
Non-refractory ore grade (g/t)................................................................................................
Gold recovery – non-refractory ore (%)........................................................................................
Gold sales (oz) ..............................................................................................................................
Cash operating cost ($/oz)
Royalties ($/oz).............................................................................................................................
Total cash cost ($/oz)
2008
2,604,639
140,036
2,744,675
19,464,979
2,736,379
2.82
66.5
359,669
2.38
66.0
170,499
837
26
863
2007
1,427,958
928,621
2,356,597
18,515,851
1,640,318
2.44
52.1
1,429,309
2.04
73.3
120,216
766
22
788
2006
—
1,363,616
1,363,616
6,013,859
—
—
—
1,493,948
3.56
60.4
103,792
412
18
430
The increase in gold output at Bogoso/Prestea also reflects improved operating availability at the sulfide plant following remediation
of several mechanical problems encountered in late 2007 and the first half of 2008, including replacement of most of the bio-oxidation
tank agitators and agitator gearboxes. A more stable operation has now resulted in a pattern of increasing tonnes processed and an
improvement in gold recoveries during 2008, as evidenced by sulfide plant gold shipments of 31,415 ounces in the first quarter of
2008, 35,248 ounces in the second quarter, 45,585 ounces in the third quarter and 40,192 in the fourth quarter. Gold recovery averaged
66.5% in 2008, up from 52.1% in 2007.
In the first half of 2008 the Bogoso oxide plant demonstrated its flexibility by processing several ore types at various times including
oxide ores, siliceous ores, refractory transition ores and refractory leachable transition ores. However, the Bogoso oxide plant was
idled in August 2008 due to unavailability of oxide ore, and we expect it to remain on care and maintenance until late 2009 when we
expect to begin mining oxide ores at Prestea South and non-refractory ores at Pampe.
Bogoso/Prestea operations resulted in a $47.2 million operating margin loss; up from a $23.9 million operating margin loss in 2007.
Bogoso/Prestea’s cash operating costs rose to $837 per ounce in 2008, up from $767 per ounce a year earlier. Increases in operating
costs including labor, fuel, power and other consumables are responsible for the higher unit costs.
Combined operating costs of the oxide and the sulfide operations totaled $159.9 million in 2008, as compared to $92.1 million in
2007. The major factors contributing to the cost increase included a full year of operation at the sulfide plant in 2008 versus a half year
in 2007 and a $16.4 million adjustment to the transition ore stockpile at Bogoso. Power, fuel, other consumables and labor costs were
also up in the year. Electric power costs increased from $0.06 per kilowatt hour in early 2007 to approximately $0.10 per kilowatt
hour in late 2007 and to approximately $0.178 per kilowatt hour after June 30, 2008. Similarly, fuel costs trended up during most of
2008 reaching a high of $1.37 per liter by October. Our fuel costs averaged $1.21 per liter in 2008, up from an average of $0.92 per
liter in 2007.
The transition stockpile contained partially oxidized ore mined from shallow depths in the sulfide pits. Partial oxidation results in low
gold recovery. When test batches of this ore were processed through both plants in 2008, it was found that gold recoveries were lower
than anticipated. In addition, lower gold prices in the fourth quarter of 2008 and higher operating costs resulted in the need to adjust
the stockpile’s carrying value down to its net recoverable value resulting in $16.4 million of inventory costs being moved into cost of
sales.
The Prestea Underground mine was deemed impaired at the end of 2008, and a $44.6 million write-off was recognized in the
statement of operations. Completion of a pre-feasibility study in mid-2008 on the Prestea Underground indicated that the economics of
the project were marginal. Increases in electric power costs later in 2008 and the on-going costs of maintaining the inactive
underground mine further contributed to the impairment determination. Portions of the Prestea South project near the town of Prestea
were also deemed impaired because the estimated cost of relocating homes and town site infrastructure negated the economic benefit
of the reserves.
Wassa Operations 2008 compared to 2007
Wassa generated $4.9 million of operating margin in 2008 versus a $9.6 million operating margin in 2007. While ore grades and gold
prices were higher in 2008 than a year earlier, increases in operating costs during 2008 more than offset the price and grade benefit.
WASSA OPERATING RESULTS
Ore mined (t)................................................................................................................................
Waste mined (t)...............................................................................................................................
Ore and heap leach materials processed (t).....................................................................................
Grade processed (g/t) ......................................................................................................................
Recovery (%) ................................................................................................................................
Gold sales (oz) ................................................................................................................................
Cash operating cost ($/oz)
Royalties ($/oz)...............................................................................................................................
Total cash cost ($/oz)
2,885,985 3,091,292
7,416,516 8,125,132
3,187,230 3,752,376
1.17
92.0
126,062
444
21
465
1.33
93.6
125,427
554
26
580
2008(1)
2007
2006
2,449,272
11,608,484
3,690,672,
0.90
88.8
97,614
474
19
493
1. Wassa’s 2008 results includes operation of the new Benso mine starting in the 4th quarter of 2008.
Wassa’s operating costs totaled $70.1 million in 2008, up from $55.9 million in 2007. The cost increases reflect material increases in
the costs of power, fuel, other consumables and labor. Wassa also saw an increase in costs once the new Benso ore began arriving at
Wassa in the fourth quarter, due primarily to haulage costs from Benso to Wassa. Cash operating costs averaged $554 per ounce in
2008, up from $444 per ounce in 2007.
Wassa’s average realized gold price rose to $866 per ounce in 2008, up from $706 per ounce in 2007, and the average ore grade
increased from 1.17 g/t in 2007 to 1.33 g/t in 2008. The grade improvement was related to receipt of 291,000 tonnes of Benso ore in
the fourth quarter of 2008 at an average grade of 4.14 grams per tonne.
Plant throughput was adversely impacted in September and October 2008 by ball mill repairs which reduced throughput to
approximately half of usual capacity for eight weeks. In addition plant throughput dropped in the fourth quarter when the Benso ore
began arriving. Shallow ore from the new Benso pit is wetter and contains more clay than ore from the Wassa pits and required a
slower feed rate. As mining proceeds at deeper levels in the Benso pits, improvements in throughput are expected.
RESULTS OF OPERATIONS – 2007 COMPARED TO 2006
Consolidated Results
Our consolidated net loss totaled $36.4 million or $0.159 per share for 2007, as compared to net income of $64.7 million or $0.312 per
share in 2006. The major factor contributing to the better results in 2006 was the sale of non-core assets, including all of our Moto
Goldmines Limited shares and most of our EURO shares. A $30.2 million pre-tax gain was recognized in 2006 on the sale the Moto
shares and a $50.9 million pre-tax gain was recorded for the sale of 22.3 million EURO shares. In comparison, during 2007, sales of
assets added only $12.4 million to pre-tax income.
Mine operating margin losses totaled $14.3 million in 2007, down from a $7.6 million positive operating margin in 2006. Overall
Bogoso/Prestea’s ounces sold and average gold prices increased over 2006 levels, but Bogoso operating margins were adversely
affected in the second half of the year when the new Bogoso sulfide processing plant was placed in service. The new plant’s operating
costs were recognized in the second half following its July 1 in-service date, but gold recovery difficulties resulted in lower than
expected revenues which resulted in a negative operating margin. Increases in the costs of labor, reagents, fuel, power and
depreciation in 2007 also contributed to the lower margin versus 2006.
General and administrative costs increased by $3.0 million to $13.9 million in 2007. The increase is primarily attributable to additions
to the management team in 2007, legal fees on financing activities and stock based compensation expenses. Derivative losses
decreased by $9.4 to $0.2 million in 2007. Most of the derivative losses incurred during 2006 were related to gold hedges held by our
former subsidiary, EURO.
A $7.1 million loss on debt restructuring was incurred in November 2007 upon the redemption of convertible notes with an aggregate
principal amount of $50 million. The majority of the foreign exchange gains earned in 2006 are related to Canadian dollar accounts
that held the proceeds of a December 2005 equity offering. Much of the 2006 interest expense was capitalized into the Bogoso sulfide
processing plant construction costs. Following the end of construction in mid-2007, interest expense was once again recognized in the
period incurred.
Bogoso/Prestea Operations 2007 compared to 2006
Bogoso/Prestea recorded an operating margin loss of $23.9 million versus a positive operating margin of $8.4 million in 2006. The
Bogoso/Prestea oxide processing plant’s operations were adversely impacted by lower ore grades and insufficient oxide ore versus
2006. Delays in obtaining permits for Pampe resulted in processing of lower grade oxide ores from various small deposits in the
Bogoso area. A 30-day maintenance shut down in May 2007 also contributed to the lower gold output. Start-up of the new Bogoso
sulfide processing plant was delayed until July 1, 2007 by plant equipment failures and design problems. Similar problems after start-
up contributed to plant throughput and gold recovery below design levels. Both plants were also adversely affected by country-wide
power shortages during the year and by increases in several categories of operating costs.
The total combined cash operating costs of the oxide and the sulfide operations totaled $94.7 million in 2007, as compared to $44.7
million in 2006. The major factor contributing to the cost increase was recognition of the new sulfide operation costs after its July 1,
2007 in-service date. Increases in labor, consumables and power costs at the oxide processing plant also contributed to the increase
over the 2006 amounts. Cost increases included fuel costs which were up 35% per liter from a year earlier. The cost of cyanide
increased 33% per tonne and steel grinding balls were 13% per tonne higher than a year earlier. The higher operating costs and lower
than expected production at the new sulfide operation, and lower ore grades and lower throughput at the Bogoso oxide processing
plant, combined to yield an average cash operating cost at Bogoso/Prestea of $766 per ounce, up from $412 per ounce 2006.
Beginning in the fourth quarter of 2007, in response to a shortfall of oxide ore from the new Pampe pit, the Bogoso oxide processing
plant activated its flotation circuit and began processing sulfide ore with the sulfide flotation concentrate going to the new sulfide
processing plant’s bio-oxidation circuit for further processing. The switch to the harder sulfide ore reduced throughput. The new bio-
oxidation circuit has sufficient excess capacity to accommodate all of the Bogoso oxide processing plant’s sulfide concentrate.
The Bogoso oxide processing plant processed an average of 3,916 tonnes per day during 2007. This included 1,429,309 tonnes of
oxide ores from January to October and 129,446 tonnes of sulfide ores from November to December 31, 2007. This compares to an
average of 4,093 tonnes per day in 2006.
The new Bogoso sulfide processing plant operated throughout the second half of 2007, but plant throughput and gold output were
below design rates. Sulfide flotation recovery rates improved throughout the period but recovery was still below design rates. The new
sulfide plant processed an average of 8,299 tonnes of ore per day during the fourth quarter.
Wassa Operations 2007 compared to 2006
Wassa generated a $9.6 million positive operating margin in 2007 versus a $0.8 million operating margin loss in 2006. Two factors
contributed to the performance improvement in addition to higher gold prices. First, was a significant decrease in waste mining
tonnage which resulted in lower overall mining costs. Secondly, the average ore grade increased from 0.90 grams per tonnes in 2006
to 1.17 grams per tonne in 2007. Reduced waste mining requirements in 2007 freed up mining equipment to mine increased amounts
of pit ore which resulted in the need for less of the low-grade heap leach ore was required. Wassa also mined more tonnes from the
new higher grade pits than in 2006. These improvements resulted in gold sales of 126,062 ounces in 2007, up from 97,614 ounces in
2006.
Wassa’s cash operating costs totaled $58.6 million in 2007, up from $48.1 million in 2006. The increase was largely due to increases
in the costs of labor, consumables and power. Cost increases versus a year earlier include fuel which was up 35% per liter, cyanide
which increased by 33% percent per tonne and steel grinding balls which increased by 13% per tonne. Power shortages during the year
resulted in significantly higher power costs because self-generated power costs were higher than the cost of power from the Ghana
grid. Even though cash costs were substantially higher in total, the increase in gold output more than compensated, yielding the
operating cash costs of $444 per ounce, down from $475 per ounce in 2006.
Wassa processed an average of 10,280 tonnes per day during 2007 at an average grade of 1.17 grams per tonne with a gold recovery of
92.0%, versus 10,111 tonnes per day at an average grade of 0.90 grams per tonne and a recovery rate of 88.8% in 2006.
Depreciation was higher in 2007 than 2006. Re-estimation of Wassa reserves at December 31, 2006 resulted in a decrease in reserves
which resulted in higher units-of-production depreciation during 2007. The increase in gold output also resulted in higher depreciation
costs.
DEVELOPMENT PROJECTS 2008
Prestea South Properties
We applied for mining permits for this area and they were received in 2008. We have applied for environmental permits and expect to
receive them during 2009. If the permits are approved in a timely basis, Prestea South development is expected to begin in 2009 with
production anticipated to start in late 2009. The Prestea South oxide ore will be transported to Bogoso and processed through the
Bogoso oxide plant. The Prestea South sulfide ore will be processed through the Bogoso sulfide plant.
HBB Properties
Development of the Benso mine began in late 2007 and by third quarter 2008 the haul road was completed to Wassa as was a truck
maintenance facility, employee housing and offices. A total of 291,000 tonnes of ore averaging 4.14 g/t was hauled from Benso to the
Wassa plant by December 31, 2008.
An extension of the haul road 30km south to the Hwini-Butre pits was commenced in the fourth quarter of 2008, and is expected to be
commissioned in the second quarter of 2009. Benso project capital expenditures totaled $40 million during 2008 and we expect to
spend approximately $10 million on the Hwini-Butre road and pit development in 2009.
As expected, the higher clay and moisture content of the initial ore from Benso necessitated blending with fresh Wassa ores to achieve
acceptable plant throughputs. While no significant metallurgical difficulties were encountered and predicted recoveries were achieved
from the volumes processed to date, Wassa plant throughput was lower in the fourth quarter of 2008 than in earlier periods.
EXPLORATION PROJECTS
During 2008 Golden Star spent $15.8 million on exploration activities compared to $13.9 million in 2007. The 2008 exploration effort
concentrated on resource delineation drilling of underground targets beneath the Plant North pit at Prestea, on the Chujah South pit at
Bogoso, on the Wassa pits and Benso pits and initial evaluation drilling of the Manso, Hwini Butre, Chichiwelli and Mansiso targets.
Other Ghana exploration included soil auger sampling on several prospects on the Western Ashanti belt, prospects north of the Wassa
mining lease and targets located on the northern portion of the Hwini Butre mining lease. Analysis of data from the VTEM
geophysical survey conducted along the Ashanti trend properties in 2007 at Bogoso, Prestea, Pampe and Dunkwa, was completed
during 2008, and interpretation, delineation and prioritization of drill targets commenced.
Exploration drilling was also conducted on our Sierra Leone and Niger projects. Our Burkina Faso properties were drilled by
Riverstone this year as part of an option agreement expenditure requirements on those properties. In Cote D’Ivoire soil sampling
programs over the previously defined stream sediment anomalies at Ameleka and Abengorou were the main focus of our 2008 efforts.
Our joint venture with Newmont on the Saramacca Project in Suriname continued in 2008 with Newmont continuing to fund the work
which involved diamond drilling and soil geochemistry programs. Our French Guiana exploration efforts were limited in 2008 as we
awaited the new mining legislation which is being revamped by the French Government. We formalized our exploration efforts in
Brazil in 2008 with the creation of a new subsidiary and the transfer of our existing licenses in Mato Grosso and Minas Gerais to this
entity.
2009 Exploration Plans
We expect to spend approximately $7.5 million on exploration activities in 2009 focusing mostly on resource definition drilling in and
around our mining leases in Ghana. Although our 2009 exploration budget is substantially less than in previous years, we expect to
accomplish a significant amount of drilling in 2009 using our own drilling department and recently purchased drill rig.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, our cash and cash equivalents totaled $33.6 million, compared with $75.8 million at the end of 2007. The
$76.7 million spent on capital development projects and new equipment during 2008 was largely responsible for the reduction in cash.
Mining equipment and mine development costs at the new Benso mine used $39.8 million, deferred exploration projects used $6.9
million and $27.6 million was used for mining equipment and mine development at Wassa and Bogoso.
Operating activities provided $30.0 million of cash during 2008, compared to $6.7 million in 2007. Changes in working capital items
including increases in payables were the major factor contributing to the increase in cash provided by operating activities as compared
to 2007.
Issuance of stock in conjunction with the Ghana Stock Exchange listing in February 2008 netted $5.3 million, and exercises of
employee stock options provided $0.9 million during the year. We borrowed a total of $11.5 million on the equipment financing
facility during the year and repaid $10.1 million. We used $7.7 million of our funds for scheduled repayments of the short term bank
loan in Ghana, leaving only $0.6 million owing on this debt at December 31, 2008.
At December 31, 2008 the Caterpillar equipment financial services facility, which has a limit of $40 million, had a balance of $31.1
million leaving available credit of $8.9 million on the facility.
At the end of 2008 all of our cash equivalents were invested in a fund that held only US treasury notes and bonds.
LIQUIDITY OUTLOOK
During 2008 world financial markets suffered a series of significant difficulties including financial institution failures, a decrease in
liquidity, a decrease in world-wide economic activity and unprecedented volatility in the cost of operating consumables and
commodity prices including gold. While gold prices declined for a brief period early in the fourth quarter of 2008, gold prices have
since risen to levels at or above those of the first nine months of 2008. Also in the fourth quarter, the costs of many of our operating
consumables began trending lower which has since lead to lower operating costs. In response to the lower gold prices early in the
fourth quarter we implemented a cost reduction program throughout the company and also deferred or cancelled certain capital
projects.
Based on the trends described above, start-up of our new higher–grade Benso mine, continuing improvements in gold output at the
Bogoso sulfide plant, our cash flow projections and the fact that most of our long term liabilities are not due until 2012, we expect that
operational cash flows during 2009, along with the $33.6 million of cash and cash equivalents on hand at December 31, 2008 and the
equipment financing facility currently in place, are expected to be sufficient to cover capital and operating needs during the next 12
months.
During 2009 we expect that the significantly higher grade ores trucked to Wassa from Benso and Hwini-Butre will have a positive
impact on Wassa’s operating cash flows which are expected to exceed prior year levels. If the Bogoso sulfide plant continues to
respond to our efforts to increase gold output during 2009 as it did in 2008, Bogoso’s contribution to operating cash flows should also
increase, and additional cash flow is expected from Bogoso/Prestea once the Prestea South oxide ore becomes available for processing
at the Bogoso oxide plant.
Our expected 2009 capital budget is substantially lower than in recent years at $38 million, down from $76.7 million spent in 2008.
The budget includes $10 million for Hwini-Butre development, $12 million for additional sulfide pit development at Bogoso, $6
million for deferred exploration and mine site drilling and $10 million of sustaining capital mostly at Bogoso and Wassa.
During 2009, we expect to make payments of principal and interest of approximately $13.6 million on the equipment financing facility
in addition to the one final $0.6 million payment made on the short term bank loan in January 2009. Interest payments on the
convertible debentures are expected to total $5.0 million in 2009.
LOOKING AHEAD
Our objectives for 2009 include:
•
•
•
•
Continue optimizing the Bogoso sulfide processing plant to improve recoveries, availability and reduce costs;
Construction and development of the Hwini-Butre portion of the HBB project, with first ore scheduled to be delivered to
Wassa in the second half of 2009;
Permitting and development of Prestea South ore bodies in 2009 to provide oxide ore for the Bogoso oxide processing
plant;
Continued exploration drilling at Bogoso/Prestea, Wassa and the HBB properties to further evaluate their resource
potential.
We are estimating 2009 Bogoso/Prestea gold production of 200,000 ounces at an average cash operating cost of $650 per ounce. We
expect Wassa to also produce approximately 200,000 ounces during 2009 at an average cash operating cost of $450 per ounce, with
consolidated total production of approximately 400,000 ounces at an average cash operating cost of approximately $550 per ounce.
As more fully disclosed in the Risk Factors in Item 1A of this Form 10-K, numerous factors could cause our estimates and
expectations to be wrong or could lead to changes in our plans. Under any of these circumstances, the estimates described above could
change materially.
RELATED PARTY TRANSACTIONS
During 2008 we obtained legal services from a legal firm to which our Chairman is of counsel. The total value of all services
purchased from this law firm during 2008 and 2007 was $0.7 million and $1.0 million, respectively. Our Chairman did not personally
perform any legal services for us during 2008 or 2007, nor did he benefit directly or indirectly from payments for the services
performed by the firm.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements reflect the application of Cdn GAAP, which is different in certain material respects from US GAAP. The
accounting policies reflected therein are generally those applied by similarly situated mining companies in Canada. Our accounting
policies under Cdn GAAP are described in Note 3 to our consolidated financial statements.
Preparation of our consolidated financial statements requires the use of estimates and assumptions that can affect reported amounts of
assets, liabilities, revenues and expenses. Accounting policies relating to asset impairments, depreciation and amortization of mining
property, plant and equipment, tax assets and site reclamation/closure accruals are subject to estimates and assumptions regarding
reserves, gold recoveries, future gold prices, future operating and reclamation costs and future mining activities.
Decisions to write off, or not to write off, all or a portion of our investment in various properties, especially exploration properties
subject to impairment analysis, are based on our judgment as to the actual value of the properties and are therefore subjective in most
cases. Certain exploration properties have been found to be impaired in the past and were written off in 2008, 2007 and 2006. We
continue to retain title to certain properties after impairment write-offs as future events and discoveries may ultimately prove that they
have value.
Listed below are the accounting policies and estimates that we believe are critical to our financial statements based on the degree of
uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being
reported.
•
•
•
•
•
Ore stockpiles: Stockpiles represent coarse ore that has been extracted from the mine and is available for further
processing. Stockpiles are measured by physical surveying or by estimating the number of tonnes of ore added and
removed from the stockpile during a period. The number of contained ounces is based on sample assay data and the
estimated gold recovery percentage is based on the expected processing method. Stockpile values are based on mining
costs incurred up to the point of stockpiling the ore, including a share of direct overhead and applicable depreciation,
depletion and amortization relating to mining operations. Costs are added to a stockpile based on current mining costs and
are removed at the average mining cost per tonne for material processed. Stockpiles are reduced as material is removed
and fed to the mill. A 10% adjustment of the stockpile value, based on stockpile levels at the end of 2008, would change
the carrying value of the stockpile inventory by approximately $2 million.
Impairment Charges: We periodically review and evaluate our long-lived assets for impairment when events or changes in
circumstances indicate the related carrying amounts may not be recoverable from continued operation of the asset. An
asset impairment is considered to exist if the sum of all estimated future cash flows, on an undiscounted basis, are less
than the carrying value of the long-lived asset. The determination of expected future cash flows requires numerous
estimates about the future, including gold prices, operating costs, gold recovery, reclamation spending, ore reserves and
capital expenditures.
Mining properties: Mining properties and certain property plant and equipment items recorded in our financial records are
amortized using a units-of-production method over Proven and Probable Mineral Reserves. Reserve estimates, which
serve as the denominator in units of production amortization calculations, involve the exercise of subjective judgment and
are based on numerous assumptions about future operating costs, future gold prices, continuity of mineralization, future
gold recovery rates, spatial configuration of gold deposits, and other factors that may prove to be incorrect. A 10%
adjustment in estimated total reserves at Wassa and at Bogoso/Prestea could result in an approximately $4 to $5 million
annual change in amortization expense.
Tax Assets: Recognition of future tax assets requires an analysis of future taxable income expectations to evaluate the
probability of sufficient future taxable income to utilize the accrued tax benefits. Determination of expected future taxable
income requires numerous estimates of future variable including but not limited to, gold prices, operating costs, gold
recovery, ore reserves, gold production, ore grades, administrative costs, tax rates, and potential changes in tax laws.
Asset retirement obligation and reclamation expenditures: Accounting for reclamation obligations requires management to
make estimates at each mining operation of reclamation and closure costs to be incurred in the future as required to
complete the reclamation and environmental remediation work mandated by existing laws, regulations and customs.
Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to
environmental laws and regulations could increase the extent of reclamation and remediation work required. Based upon
our current situation, we estimate that a 10% increases in total future reclamation and closure costs would result in an
approximately $5 million increase in our asset retirement obligations.
RECENT ACCOUNTING PRONOUNCEMENTS
Changes in Accounting Policies During 2008
Effective January 1, 2008, we adopted the following accounting standards updates issued by the Canadian Institute of Chartered
Accountants (“CICA”). These new standards have been adopted on a prospective basis with no restatement to prior period financial
statements.
(a) Capital Disclosures (Section 1535)
This standard requires disclosure of an entity’s objectives, policies and processes for managing capital, quantitative data about what
the entity regards as capital and whether the entity has complied with any capital requirements and, if it has not complied, the
consequences of such noncompliance.
(b) Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same title and harmonizes accounting for inventories under Canadian GAAP
with IFRS. This standard requires that inventories be measured at the lower of cost and net realizable value, and includes guidance on
the determination of cost, including allocation of overheads and other costs. The standard also requires that similar inventories within
a consolidated group be measured using the same method of either first-in, first-out (FIFO) or weighted average cost formula to
measure the cost of other inventories. It also requires the reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. The adoption of this statement resulted in the reclassification of $1.7million and
$0.8 million from inventory to property, plant and equipment at December 31, 2008, and December 31, 2007, respectively.
(c) Going Concern – Amendments to Section 1400
CICA 1400, General Standards of Financial Statement Presentation, was amended to include requirements to assess and disclose an
entity’s ability to continue as a going concern. The new requirements were effective for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2008. The adoption of this statement did not have an impact on the
consolidated financial statements.
(d) Financial Instruments – Disclosure (Section 3862) and Presentation (Section 3863)
These standards replace CICA 3861, Financial Instruments – Disclosure and Presentation. They increase the disclosures currently
required, which will enable users to evaluate the significance of financial instruments for an entity’s financial position and
performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information
about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk
and market risk. The quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based
on information provided internally to the entity’s key management personnel.
Recent Accounting Pronouncements
Section 3064 replaces CICA 3062 and establishes standards for the recognition, measurement and disclosure of goodwill and
intangible assets. The provisions relating to the definition and initial recognition of intangible assets are equivalent to the
corresponding provisions of IAS 38, Intangible Assets. CICA 1000—Financial Statement Concepts is amended to clarify criteria for
recognition of an asset. CICA 3450 – Research and Development Costs is replaced by guidance in CICA 3064. EIC 27 is no longer
applicable for entities that have adopted CICA 3064. A number of other EIC abstracts have consequential amendments. AcG 11 –
Enterprises in the Development Stage is also amended to delete references to deferred costs and to provide guidance on development
costs as intangible assets under CICA 3064. These changes are effective for the Company commencing January 1, 2009.
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements.
TABLE OF CONTRACTUAL OBLIGATIONS
Payment due by period (in millions)
Total
156.6
Debt (1) ................................................................................................
24.0
Interest on long term debt................................................................
1.1
Operating lease obligations ................................................................
7.1
Capital lease obligations................................................................
43.4
Asset retirement obligations (2) ................................................................
Total ................................................................................................ 232.2
Less than 1 Year
12.1
7.1
0.3
3.5
1.5
1 to 3 years
14.8
11.6
0.6
3.5
4.4
3 to 5 years
129.6
5.3
0.3
—
20.1
24.5
35.0
155.3
More than
5 Years
—
—
—
—
17.4
17.4
(1)
Includes $125.0 million of convertible debentures maturing in 2012. Golden Star has the right to repay the $125.0 million in
cash or in common shares at the due date under certain circumstances. The presentation shown above assumes payment is made
in cash and also assumes no conversions of the debt to common shares by the holders prior to the maturity date.
(2) Asset retirement obligations include several estimates about future reclamation costs, mining schedules, timing of the
performance of reclamation work and the quantity of ore reserves, an analysis of which determines the ultimate closure date and
impacts the discounted amounts of future asset retirement liabilities. The discounted value of these projected cash flows is
recorded as “Asset retirement obligations” on the balance sheet of $31.7 million as of December 31, 2008. The amounts shown
above are undiscounted to show full expected cash requirements.
OUTSTANDING SHARE DATA
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes information available to
February 24, 2009. As of February 24, 2009 we had outstanding 236,005,311 common shares, options to acquire 7,567,897 common
shares, and convertible notes which are currently convertible into 25,000,000 common shares.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk includes, but is not limited to, the following risks: changes in interest rates on our investment portfolio
and debt, changes in foreign currency exchange rates, commodity price fluctuations and equity price risk.
Interest Rate Risk
Our excess cash is typically invested in high quality short-term debt instruments. The interest rates received on such investments
fluctuate with changes in economic conditions. As a result, our investment income may fall short of expectations during periods of
lower interest rates. We estimate that, given the cash balances expected during 2009, a 1% change in interest rates would not
materially impact our annual income. We do not utilize interest rate sensitive derivatives to mitigate interest rate risk. We have not
entered into any agreements to hedge against unfavorable changes in interest rates, but may in the future actively manage our exposure
to interest rate risk.
Foreign Currency Exchange Rate Risk
While our major operating units transact most of their business in US dollars, certain purchases of labor, operating supplies and capital
assets are denominated in Euros, British pounds, Australian dollars, South African rand and Ghanaian cedi. As a result, currency
exchange fluctuations have in the past and may continue in the future to impact the costs of goods and services purchased in
currencies other than the US dollar. The appreciation of non-US dollar currencies against the US dollar increases the costs of goods
and services purchased in non-US dollar terms, which can adversely impact our net income and cash flows. Conversely, a depreciation
of non-US dollar currencies against the US dollar usually decreases the costs of goods and services purchased in US dollar terms.
During the second half of 2008, strengthening of the US dollar resulted in $2.6 million of currency gains mostly related to purchases
of operating and capital items in Ghana where the Ghana Cedi has weakened against the US dollar.
In general, the value of cash and cash equivalent investments denominated in foreign currencies fluctuates with changes in currency
exchange rates. Appreciation of non-US dollar currencies results in a foreign currency gain on such investments and a decrease in
non-US dollar currencies results in a loss. We held minimal balances in foreign currency accounts during 2008 and thus there were no
material gains or losses from this source.
At December 31, 2008, we held no foreign currency purchase agreements and do not anticipate using foreign currency purchase
agreements on a regular basis.
Commodity Price Risk
Gold is our primary product and, as a result, changes in the price of gold could significantly affect our results of operations and cash
flows. According to current estimates, a $10 per ounce change in our average realized price of gold for 2009 would result in a $4.0 to
$4.5 million change in pre-tax earnings and cash flows.
In the third and fourth quarters of 2008, we entered into a series of gold forward price contracts in response to a significant increase in
gold price volatility. We entered forward contracts covering 50,000 ounces or approximately half of our expected fourth quarter gold
production in the fourth quarter at an average price of $861 per ounce. Late in the fourth quarter we entered into forward sales
agreements covering a total of 45,000 ounces which expire ratably on a weekly basis throughout the first quarter of 2009 at an average
price of $825 per ounce.
Our operating costs are exposed to fluctuations in the price of crude oil in world markets, prolonged increases in the price of crude oil
will result in an increase the fuel cost to operate our equipment, an increase in the cost to import goods and services, and also an
increase in our power cost. Conversely a decrease in the price of crude oil will result in a decrease in the aforementioned costs.
Equity Price Risk
We have in the past and may in the future seek to acquire additional funding by sale of common shares. Movements in the price of our
common shares have been volatile in the past and may be volatile in the future. As a result, there is a risk that we may not be able to
sell new common shares at an acceptable price should the need for new equity funding arise.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements of
Golden Star Resources Ltd.
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2008, 2007, and 2006
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
Notes to the Consolidated Financial Statements
62
63
64
65
66
67
Independent Auditors’ Report
To the Shareholders of Golden Star Resources Ltd.
We have completed integrated audits of Golden Star Resources Ltd.’s 2008, 2007 and 2006 consolidated financial statements and of
its internal control over financial reporting as at December 31, 2008. Our opinions, based on our audits, are presented below.
Consolidated financial statements
We have audited the accompanying consolidated balance sheets of Golden Star Resources Ltd. as at December 31, 2008 and
December 31, 2007, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’
equity and cash flows for each of the years in the three year period ended December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits of the Company’s financial statements in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of
financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as at December 31, 2008 and December 31, 2007, and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2008 in accordance with Canadian generally accepted accounting principles.
Internal control over financial reporting
We have also audited Golden Star Resources Ltd.’s internal control over financial reporting as at December 31, 2008, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in Item 9A of the Annual Report on
Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31,
2008 based on criteria established in Internal Control — Integrated Framework issued by the COSO.
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