2016
ANNUAL REPORT
Expanding Production and Reducing Costs
COMPANY
PROFILE
Golden Star is an established gold mining
company that owns and operates the Wassa
and Prestea mines situated on the prolific
Ashanti Gold Belt in Ghana, West Africa.
Golden Star is strategically focused on
increasing operating margins and cash flow
through the development of its two high grade,
low cost underground mines in conjunction
with existing open pit operations. The Wassa
Underground Gold Mine commenced
commercial production in January 2017 and
the Prestea Underground Gold Mine is expected
to achieve commercial production in mid-2017.
Gold production in 2017 is expected to be
255,000-280,000 ounces with cash operating
costs* of $780-860 per ounce.
Golden Star is listed on the Toronto Stock
Exchange (TSX: GSC), the New York Stock
Exchange MKT (NYSE MKT: GSS), and the
Ghanaian Stock Exchange (GSE: GSR).
*
See “non-GAAP Financial Measures” in the Management’s Discussion
and Analysis (MD&A)
For more information on the Company,
please visit www.gsr.com.
CONTENTS
Highlights
Message from the Chairman
Message from the Chief Executive Officer
Operations
Corporate Responsibility
Board of Directors
Mineral Reserves and Mineral Resources
Management’s Discussion and Analysis
Financial Statements
Contact Details
1
2
3
4
6
8
10
12
40
ibc
D
HIGHLIGHTS
Gold production of
194,054 ounces, in the top half
of the guidance range
Cash operating
cost* of
$872/ounce, an
11%
decrease
compared to 2015
Mine operating
margin* of
$27.5
million,
compared to
a loss of
$27.6 million
in 2015
Capital
expenditures of
$84.4 million, with
83%
primarily
representing
development
capital for the two
underground projects
Wassa Underground achieved commercial
production on January 1, 2017 and
Prestea Underground advanced significantly
towards commercial production in mid-2017
* See “Non-GAAP Financial Measures” in the MD&A
1
ANNUAL REPORT 2016 | MESSAGE FROM
THE CHAIRMAN
Golden Star has made substantial progress during 2016 on
its strategy to transform into a high grade, low cost gold
producer. In 2013 the Board of Directors supported the
management team’s plan to cease our refractory operation
at Bogoso and instead focus on the non-refractory, high
grade, underground potential of our two assets. By 2015
Golden Star had replaced our two million ounces of
refractory Mineral Reserves with non-refractory Mineral
Reserves and by the end of 2017 we expect to have two
producing underground mines, in addition to our surface
production.
During the past year we achieved a number of critical
milestones in the development of our two underground projects
including the blasting of the first stope at Wassa Underground
and completing the rehabilitation of the shaft at Prestea
Underground. We also received the mining lease for the high
grade Mampon deposit, which will generate robust cash flow
in 2017. At a corporate level, the transformation was equally
substantial. We restructured our debt repayments in order to
align them more closely to forecast cash flow and we raised
two tranches of equity in order to strengthen our balance
sheet further.
It is a great achievement to construct two underground mines
at the same time as meeting our full year 2016 guidance on all
metrics. It shows the strength and depth of our team and is
testament to their motivation and hard work. I am particularly
proud that we built the two mines with our own team and
without the use of contractors. Similarly, the management team
has continued to mature and grow in confidence and this is
reflected in the more consistent performance we have
delivered at both operations.
Safety and well-being is a key focus for everyone at Golden Star.
Our Lost Time Frequency Index of 0.36 per million hour for the
year is a credit to our teams in Ghana and we will continue to
improve our performance over the coming years. I am also very
proud of our commitment to corporate responsibility. One
example of this is our program to raise awareness of breast
cancer: during the past three years we have screened
approximately 10,000 women in our host communities for the
disease. Another example is our GSOPP (Golden Star Oil Palm
Plantation) project. We have over 300 smallholder farmers,
350 contract workers and over 1,050 hectares of land involved,
creating a sustainable legacy for the Company.
Looking ahead, I believe Golden Star will continue to grow in
sophistication as we further reduce our risk profile and increase
our profitability. We have a number of important milestones on
the horizon for 2017 including declaring commercial production
at Prestea Underground and accessing the higher grade,
transverse stoping areas of the B Shoot zone in Wassa
Underground. We will also invest in a larger exploration
program with the intention of extending the lives of both
operations and confirming the potential of one of the largest
land packages in Ghana. Once achieved, these milestones
will bring us closer to our objective of becoming a high grade,
low cost producer.
On behalf of the Board, I thank sincerely all of Golden Star’s
employees for their hard work and dedication over the past
year. I would also like to thank our shareholders for their
support and commitment to the Company and to thank
our host communities for their continued partnership.
Finally I would like to thank my fellow Directors for their
valuable contribution during the year.
Tim Baker
Chairman
2
| GOLDEN STAR RESOURCES
MESSAGE FROM
THE CHIEF EXECUTIVE OFFICER
In 2016, Golden Star continued to reach important
milestones in our transformation into a high grade, low
cost, non-refractory producer. I am very impressed by what
our teams have achieved at all levels of the Company: from
the operations, to our balance sheet, to our social licence
to operate in Ghana. We have continued to deliver on our
strategy and we are well positioned for a strong 2017.
Employee safety and well-being are at the heart of our
company and I am delighted that our efforts were once again
recognized at the Ghana Mining Awards. I am also very proud
of our corporate responsibility team as it is their work that will
enable Golden Star to leave a positive and sustainable legacy
beyond the lives of our mining operations. The achievements
of our team were underlined by the support we received
from our host communities, local suppliers, new and existing
shareholders and the government of Ghana. We value these
partnerships highly and we look forward to delivering robust
returns for all of our stakeholders.
Looking now at the operations, in 2016 we again achieved our
full year guidance in terms of production, cash operating costs
and capital expenditures. We delivered gold production of
194,054 ounces, which was in the top half of the range, and
our costs continued to decrease following the closure of the
refractory operations in 2015.
In 2017 we expect to deliver stronger production and lower
operating cash costs. Our full year 2017 guidance shows that
production is expected to increase by 31% to 44% compared
to 2016’s production results and our cash operating costs will
decrease by 1% to 11%.
During 2016 we also saw the development of our two
underground projects gain momentum. In July 2016 the first
stope was blasted at Wassa Underground, with commercial
production achieved post-period end on January 1, 2017.
At Prestea Underground we expect to blast the first stope
in the second quarter of 2017 and to achieve commercial
production around mid-year. We advanced both of these
projects with our own workforce in addition to carrying out
a number of other infrastructure upgrades such as completing
a new Tailings Storage Facility and upgrading the Wassa
processing plant. I am very proud of what our operating teams
and development teams have achieved and I have seen a new
vigor emerge throughout our company and a “can do” culture
establishing itself.
In addition to our existing operations, Golden Star is endowed
with one of the largest land packages of any company in
Ghana. 2017 will see exploration become a focus again for
Golden Star with the objective of growing our Mineral Resource
inventory and increasing the lives of our operations.
At the corporate level, the transformation has continued. During
2016 we focused on strengthening our balance sheet through
debt and equity transactions and we now have a solid financial
footing to allow us to achieve our objectives. I was pleased to
see that our share price reflected the improvements we have
made across all areas of the company, with growth of 330%
during the year, and I am delighted to welcome new
shareholders to our company and to thank our existing
shareholders for their continued support. We will work hard
to retain your confidence.
Finally, I would like to thank my fellow Board members for their
enthusiasm, hard work and valuable guidance as we continued
along our path to be a combined open pit and underground
gold producer. We remain confident that we can deliver on our
strategy and I am excited about the great potential that exists
within our team. I look forward to providing further updates on
our continued progress over the course of 2017.
Samuel T. Coetzer
President and Chief Executive Offi cer
ANNUAL REPORT 2016 |
3
GOLDEN STAR
OPERATIONS
EDIKAN
MAMPON
Prestea Mines
Prestea is located in south-western
Ghana. At present, Golden Star is
producing gold from the Prestea
Open Pits, which are a series of oxide
surface deposits close to the Prestea
Underground Gold Mine. The Prestea
West Reef deposit is hosted within a
ribbon banded quartz vein associated
with abundant free gold, pyrite and
minor arsenopyrite occurring as a
halo, dominantly in the hanging wall
of the vein. The intention was for
the Prestea Open Pits to provide a
bridge between production from the
refractory operation on the adjacent
Bogoso concession area ceasing
in Q3 2015 and non-refractory
production from Prestea Underground
commencing in mid-2017. Prestea
Underground was first mined in the
late 1800s and it is one of the highest
grade development projects in West
Africa, with Mineral Reserves grading
13.93 grams per tonne. The
rehabilitation of Prestea Underground
advanced strongly during 2016 and
the first stopes are expected to be
blasted in Q2 2017. Production from
Prestea Underground is expected
to be 90,000 ounces per year over
an initial 5.5 year mine life, with an
All-In Sustaining Cost* of $615 per
ounce. Golden Star believes there
is significant potential to expand
production and extend the mine’s
life through exploration. Full year
2017 production is anticipated to
be 65,000-70,000 ounces from the
Prestea Open Pits and 45,000-50,000
ounces from Prestea Underground
at a cash operating cost* of $715-780
per ounce.
Kumasi Basin
PRESTEA
OPEN PITS
BOGOSO
PROCESSING
FACILITY
DAMANG
PRESTEA
UNDERGROUND
TARKWA
IDUAPRIEM
NZEMA
Ashanti Belt
Ghana
Gulf of Guinea
4
| GOLDEN STAR RESOURCES Wassa Mines
Wassa is also located in south-
western Ghana, approximately
40 kilometres from Prestea. The
Wassa deposit is hosted by quartz
carbonite veins with pyrite, it is one
of the earliest gold mineralizing
events in West Africa and has been
affected by at least four
deformational episodes. Golden Star
began production from Wassa in
2005 and mined a series of surface
deposits before consolidating a
number of smaller pits to form the
Wassa Main Pit. In mid-2016 the
Wassa Underground gold mine
began production and commercial
production was achieved on January
1, 2017. From Q1 2017 onwards, Golden
Star will be mining the same
orebody, known as the B Shoot, via
the Wassa Main Pit and Wassa
Underground. Wassa has a
2.7 million tonne per annum
producing plant 500 metres from the
Wassa Main Pit and ore from both
Wassa Main Pit and Wassa
Underground is blended and
processed here. Wassa has a mine
life of seven years and production is
expected to be approximately 175,000
ounces per annum on average during
this time. The B Shoot remains open
down plunge so Golden Star believes
there is significant potential to
expand production and extend the
mine’s life through exploration. Full
year 2017 production guidance is
anticipated to be 85,000-95,000
ounces from Wassa Main Pit and
60,000-65,000 ounces from Wassa
Underground at a cash operating
cost* of $830-915 per ounce.
WASSA
TAKORADI
Key Facts on Ghana
• Ghana is the oldest democratic independent state in Africa, south of the Sahara.
• Ghana has a stable constitutional democracy, with the most recent parliamentary and Presidential
elections taking place in December 2016.
• Ghana is Africa’s second largest gold producer after South Africa.
• Ghana has a long history of large scale gold mining, with four prolific greenstone belts that have
yielded +120Moz of gold in past production.
• Ghana is a respected mining jurisdiction with stable and well legislated royalty and tax laws.
Notes
* See “Non-GAAP Financial Measures” in MD&A
ANNUAL REPORT 2016 |
5
CORPORATE RESPONSIBILITY
Golden Star is committed to being a part of the community
in which we operate. Our mission is the responsible and
profitable production of gold. We value respect, honesty,
teamwork, accountability and open communication in all
relationships, and we are committed to safety, employee
well-being and protection of the environment.
WHAT DOES CORPORATE RESPONSIBILITY
MEAN TO US?
Our objective is to maintain a socially responsible business that
brings economic prosperity while ensuring responsible
environmental stewardship and ethical business practice.
In 2016 to increase transparency, Golden Star launched onto a
variety of social media platforms. We can now be followed on
Facebook, LinkedIn and Twitter and more information is available
about our commitment to corporate responsibility on our blog:
www.goldenstarinthecommunity.blogspot.ca
Voluntary Principles on Security and Human Rights
As a signatory to the UN Global Compact, and as a member of the
World Gold Council, we support the Voluntary Principles on Security
and Human Rights. All private and public security personnel
working at our operations are required to participate in training
related to the Voluntary Principles, and sign a certificate confirming
commitment to the principles.
Safety, health and wellbeing
Golden Star values and is committed to safety and employee
well-being. We believe that job-related injuries and illnesses are
unacceptable.
In support of our commitment, we continue to improve our health
and safety systems, and grow our skills and capacity in support of
our changing business.
In 2016 Golden Star was recognized by the Ghana Mining Industry
Awards and Minerals Commission at annual awards ceremonies,
winning awards for health and safety, and first aid. One of our
employees, Sidi Adam, also was recognized with the first ever
Excellence Award.
More importantly than any award, we remain committed to the
continual improvement of health and safety to ensure everyone
goes home safely every day. In 2016 there were no fatal incidents at
our operations, however every injury is unacceptable, and so our
journey must continue.
Precautionary approach to the environment
We are committed to meeting or surpassing regulatory
requirements in all our activities, while safeguarding the local
environment for our stakeholder communities, and future
generations. We continue to operate extensive programs
of environmental monitoring to demonstrate a high level of
conformance.
GOLDEN STAR OIL PALM PLANTATION
The Golden Star Oil Palm Plantation (GSOPP) celebrated its tenth anniversary in 2016.
6
| GOLDEN STAR RESOURCES WORKING IN PARTNERSHIP WITH OTHER
ORGANIZATIONS
Golden Star is committed to being a part of the community in
which we operate by building strong relationships based on mutual
trust and recognition of each other’s rights.
Ghana’s National CSR Policy
In 2016 Ghana launched its National Corporate Social Responsibility
Policy to promote the sustainable development of Ghana.
Robert Gyamfi, a Golden Star Community Relations Manager, was
honoured for his “immense contribution and selfless dedication to
this National call” by the Minister for Trade and Industry.
Early detection saves lives
In 2016 Golden Star, and its partners the Deutsche Gesellschaft für
Internationale Zusammenarbeit or GIZ and Ghana Health Services,
screened over 4,000 women for breast cancer. This brings our three
year total to more than 10,400 women and girls and the project has
potentially saved as many as 270 lives.
From its humble start in 2013, the program continues to increase
in depth and in 2016 had the following elements:
•
•
•
•
•
•
Screening across all Districts of the Golden Star catchment
communities
Outreach to 30 communities at 41 locations, including seven
junior and senior secondary schools
Recording of risk factor information for all participants to support
diagnosis, treatment and cancer research
Provision of education materials to participants, and community
health facilities
Breast cancer awareness and self-examination talks during
screening sessions
Participatory training and capacity building for Ghana Health
Services nurses by Breast Care International.
Prevention is Better Than Cure
Another important health partnership project is the first ever
prevention-focused community clinic in Ghana. In its first year
of operations, the Akyempim clinic, which brings together curative
and preventative services, has been a huge success. The Prevention
is Better Than Cure partners are now planning expansion of the
approach into the Quasi-Government Hospitals services in Ghana.
GOLDEN STAR’S COMMUNITY INITIATIVES
We are committed to developing long term alternative economic
and capacity-building projects to provide enduring social and
economic benefits from our operations.
Golden Star Oil Palm Plantation (GSOPP)
In 2016 our award-winning, social enterprise initiative GSOPP
celebrated its tenth anniversary. Established in April 2006 as a
non-profit subsidiary, GSOPP promotes the development of oil palm
GOLDEN STAR and its partners have screened over 10,400 women in Ghana
for breast cancer over the past three years.
plantations amongst our catchment communities, using the
smallholder concept.
Funded by Golden Star with $1 per ounce of gold produced, to
date we have directed over $5.3 million to this important initiative,
to reduce poverty through employment generation, and promote
wealth creation through sustainable agri-business. GSOPP now
employs over 300 smallholder farmers and 350 contract workers.
It covers over 1,050 hectares with plantations in ten host
communities.
Golden Star Development Foundation (GSDF)
Golden Star contributes $1 per ounce of gold plus 0.1% of pre-tax
profit to the GSDF for community development and support.
Projects are selected by the communities through consultative
committees, respecting the rights of our host communities to
determine their own development needs.
In 2016 key projects of the development foundations included:
•
Purchase of domestic waste disposal tractor and trailers
for Prestea
•
Provision of potable water supply systems to host communities
• Construction of a community centre at Kubekro
• Student scholarships.
Since the establishment of GSDF in 2006, we have contributed over
$3.3 million to the Foundation.
Golden Star Skills Training and Employability
Programme (GSSTEP)
Inaugurated in 2009, GSSTEP provides employment skills to young
people, expands employment opportunities in our catchment
communities and provides viable employment alternatives to
reduce reliance on unauthorized activities, such as artisanal mining.
Since its inception, 12 GSSTEP programs have provided skills training
to 568 trainees in masonry, commercial cookery, carpentry, and
mobile phone repairs amongst other areas and Golden Star has
contributed over $1.0 million to GSSTEP.
7
ANNUAL REPORT 2016 | MEMBERS OF
THE BOARD
Tim Baker
Chairman
Tim was appointed
Chairman of the Board
in January 2013. Tim most
recently served as the
COO and EVP of Kinross
Gold Corporation. He is
a geologist with over
30 years of global
project development,
operational, and
geological experience
including in Chile,
Tanzania, the United
States, Canada,
Venezuela, Kenya and
Liberia. Tim is also a
Director of Antofagasta
PLC, Sherritt International
and Rye Patch Gold Corp.
Sam Coetzer
President and
Chief Executive Officer,
Director
Sam was appointed
President and CEO of
Golden Star in January
2013. He joined the
Company in December
2012 and previously
served as EVP and COO,
as well as a Director.
Sam is a mining engineer
with over 26 years of
international mining
experience with Kinross,
Xstrata, Xstrata Coal,
and Placer Dome.
Sam was the Senior
Vice President at Kinross
responsible for the South
Americas in 2010 prior
to joining Golden Star.
Gil Clausen
Director
Anu Dhir
Director
Robert Doyle
Director
Gil is the President
and CEO of Brio Gold Inc.
and former President and
CEO of Augusta Resource
Corporation. He serves as
an independent director
of Plata Latina Minerals
Corporation. With over
30 years’ industry
experience, Gil has been
responsible for executing
growth strategies for
mining companies on
a range of continents
and across a variety of
commodities. He is a
Professional Engineer
and holds a Bachelor’s
degree and a Master’s
degree, each in Mining
Engineering from Queens
University, Canada.
Anu is a co-founder of
ZinQ Mining, a private
base metals and precious
metals royalty company
that focuses on the Latin
America region. She is
also the Managing
Director of Miniqs Limited,
a private group primarily
interested in developing
resource projects. Prior to
Miniqs and ZinQ Mining,
Anu was VP, Corporate
Development and
Company Secretary at
Katanga Mining Limited.
Anu is a non-executive
director of Trillium Health
Partners and holds a BA
from the University of
Toronto and a law
degree from Quinnipiac
University, U.S.
Robert has over 30 years’
mining experience. Most
recently, he was Founder
and CEO of Medoro
Resources, now Gran
Colombia Gold Corp.
Prior to this, Robert
served as EVP and CFO
of Pacific Stratus Energy,
CFO of Coalcorp Mining,
and CFO of Bolivar Gold
Corp. Currently, Robert
serves as a Director and
Chairman of the audit
committee of Mandalay
Resources Corp. and
Detour Gold Corporation.
Robert is a Chartered
Accountant and a
Chartered Director.
8
| GOLDEN STAR RESOURCES Tony Jensen
Director
Craig Nelson
Director
Tony has over 30 years’
of mining industry
experience and is
President, CEO and a
Board member of Royal
Gold Inc. Prior to this,
Tony was the Mine
General Manager of the
Cortez Joint Venture and
spent 18 years with Placer
Dome. He is a member
of the National Mining
Association Board and
Finance Committee,
the World Gold Council
Board and Remuneration
Committee Chairman,
and the South Dakota
School of Mines
and Technology
University Board.
Craig is a geologist with
over 35 years’ experience
in the mining industry.
Craig was Founder and
CEO of Avanti Mining.
Formerly, he was EVP,
Exploration of Gold Fields
Limited; Founder, CEO
and Chairman of
Metallica Resources (now
New Gold), and has also
held a variety of strategic
positions at Lac Minerals
Ltd. Craig holds a M.S.
from the University of
New Mexico and a B.A.
from the University of
Montana, both in
geology.
Daniel Owiredu
Executive Vice President
and Chief Operating
Officer, Director
Daniel joined Golden Star
in 2006 as VP, Operations
and was appointed
COO in January 2013,
joining the Board in
November 2014. He has
over 30 years’ experience
in Ghana and West
Africa. Most recently,
Daniel was Deputy COO
Africa for AngloGold
Ashanti, managing
the construction and
operation of the Bibiani
mine as well as the
operation of several
other mines. Daniel is the
Chairman of the GCB
Bank and was formerly
Ghana’s President of the
Chamber of Mines.
Bill Yeates
Director
Bill was a founding
partner of Hein &
Associates LLP (Hein).
He has over 40 years’
auditing experience,
having served on the
Financial Accounting
Standards Advisory
Council; the Professional
Practice Executive
Committee of the Center
for Audit Quality; the
Executive Committee
of the Center for Public
Company Audit Firms
of the American Institute
of Certified Public
Accountants (“AICPA”);
the SEC Practice Section
Executive Committee
and the SEC Regulations
Committee of the AICPA.
Bill is a CPA.
SENIOR
MANAGEMENT:
André van Niekerk,
Executive Vice
President and Chief
Financial Officer
Bruce Higson-
Smith
Senior Vice
President,
Corporate Strategy
Martin Raffield
Senior Vice
President, Project
Development
and Technical
Services
Karen Walsh
Vice President,
People and
Organizational
Development
Mitch Wasel
Vice President,
Exploration
Katharine Sutton
Director, Investor
Relations and
Corporate Affairs
9
ANNUAL REPORT 2016 | MINERAL RESERVES AND MINERAL RESOURCES
PROVEN AND PROBABLE MINERAL RESERVES
December 31, 2016
PROVEN
MINERAL RESERVE
December 31, 2016
PROBABLE
MINERAL RESERVE
December 31, 2016
PROVEN + PROBABLE
MINERAL RESERVE
December 31, 2015
PROVEN + PROBABLE
MINERAL RESERVE
Tonnes
(000)
Grade
g/t Au
Content
(000)
oz
Tonnes
(000)
Grade
g/t Au
Content
(000)
oz
Tonnes
(000)
Grade
g/t Au
Content
(000)
oz
Tonnes
(000)
Grade
g/t Au
Content
(000)
oz
Wassa
Open Pit
Wassa
Underground
–
–
Stockpiles
695
Subtotal Wassa
695
Mampon
Prestea
South
Prestea
Underground
Stockpiles
Subtotal
Prestea
GSR Total
–
–
0.96
0.96
–
–
–
–
–
–
115
2.55
115
810
2.55
1.18
–
–
21
21
–
–
–
9
9
11,264
1.56
565
11,264
1.56
565
14,179
1.46
667
5,477
4.21
742
5,477
–
–
–
695
4.21
0.96
742
21
5,397
789
4.59
0.93
796
24
16,741
2.43
1,307
17,436
2.37
1,328
20,365
2.27
1,486
301
4.64
510
2.31
45
38
301
4.64
510
2.31
45
38
304
4.60
45
1,892
2.30
140
1,094
13.93
490
1,094
13.93
490
1,041
14.02
–
–
–
115
2.55
9
25
2.69
469
2
1,905
31
18,646
9.35
3.13
573
2,020
1,879
19,456
8.96
3.05
582
3,261
1,910
23,626
6.26
2.82
656
2,143
Notes to the Mineral Reserve Statement:
1. The Mineral Reserves as of December 31, 2016, were estimated using a gold price assumption of $1,100 per ounce.
2.
The slope angles of all pit designs are based on geotechnical criteria as established by external consultants. The shape and size of the pit
designs are guided by consideration of the results from a pit optimization program.
Cut-off grades have been estimated based on operating cost projections, mining dilution and recovery, government royalty payment
requirements and applicable metallurgical recovery. Marginal cut-off grade estimates for the open pits are as follows: Wassa: 0.7 g/t;
Mampon (part of the Prestea reserves): 1.5 g/t; and Prestea South: 1.2 g/t. Break-even cut-off grade estimates for the underground mines are
as follows: Wassa Underground: 2.4 g/t; and Prestea Underground: 7.7 g/t.
3.
4. Numbers may not add correctly due to rounding.
5. Only non-refractory ore is included in Golden Star’s Mineral Reserves.
10
| GOLDEN STAR RESOURCES
MEASURED AND INDICATED MINERAL RESOURCES
December 31, 2016
INDICATED
MINERAL RESOURCES
December 31, 2016
MEASURED + INDICATED
MINERAL RESOURCES
December 31, 2015
MEASURED + INDICATED
MINERAL RESOURCES
Wassa
Bogoso/Prestea
Tonnes
(000)
44,347
19,818
Total (including Refractory)
64,165
Total (excluding Refractory)
49,741
INFERRED MINERAL RESOURCES
Grade
g/t Au
Ounces
(000)
Tonnes
(000)
Grade
g/t Au
Ounces
(000)
Tonnes
(000)
Grade
g/t Au
Ounces
(000)
2.33
3.85
2.80
2.7
3,328
2,451
5,778
4,382
44,347
19,818
64,165
49,741
2.33
3.85
2.80
2.74
3,328
2,451
5,778
4,382
54,647
21,452
76,099
61,359
2.02
3.72
2.50
2.38
3,556
2,564
6,120
4,700
December 31, 2016
INFERRED
MINERAL RESOURCES
December 31, 2015
INFERRED
MINERAL RESOURCES
Tonnes
(000)
15,581
4,835
20,417
19,305
Grade
g/t Au
Ounces
(000)
4.20
6.64
4.77
4.89
2,102
1,032
3,134
3,034
Tonnes
(000)
16,492
4,997
21,486
20,305
Grade
g/t Au
Ounces
(000)
4.15
6.88
4.78
4.82
2,200
1,105
3,305
3,144
Wassa
Bogoso/Prestea
Total (including Refractory)
Total (excluding Refractory)
Notes to the Measured and Indicated Mineral Resources and the Inferred Mineral Resource Statement*:
1. The Mineral Resources for Wassa Other include Father Brown, Benso and Chichiwilli.
2. The Mineral Resources for Bogoso/Prestea Other include Chujah, Dumasi, Bogoso North, Buesichem, Opon, and Ablifa.
3.
The Wassa Underground Mineral Resource has been estimated below the $1,300 per ounce of gold pit shell using an economic gold
grade cut-off of 1.81 g/t Au, which the Company believes would be the lower cut-off for underground.
The Father Brown Underground Mineral Resource has been estimated below the $1,300 per ounce of gold pit shell using an economic
gold grade cut-off of 3.17 g/t Au, which the Company believes would be the lower cut-off for underground.
Prestea Underground Mineral Resource has been estimated below the $1,300 pit shell of Prestea South down to 3,800m elevation using
a gold cut-off at 5.43 g/t Au.
Mineral Resources were estimated using optimized pit shells at a gold price of $1,300 per ounce. Other than gold price, the same
optimized pit shell and underground parameters and modifying factors used to determine the Mineral Reserves were used to determine
the Mineral Resources.
4.
5.
6.
7. Mineral Resources are inclusive of Mineral Reserves.
8. Numbers may not add correctly due to rounding.
Additional Information
The Mineral Resources estimates in the above tables were reviewed and approved by S. Mitchel Wasel, Vice President Exploration for Golden
Star and a “Qualified Person” pursuant to National Instrument 43-101, and the Mineral Reserves estimates in the above tables were reviewed
and approved by Dr. Martin Raffield, Senior Vice President Project Development and Technical Services for Golden Star and a “Qualified
Person” pursuant to National Instrument 43-101. See “Note Regarding Reserves and Resources” in the MD&A.
The full Mineral Reserve and Mineral Resource tables, including a more detailed breakdown by asset, can be viewed at:
www.gsr.com/operations/reserves-and-resources
11
ANNUAL REPORT 2016 | CONTENTS
Overview of Golden Star
Table of contractual obligations
Summary of operating and financial results 15
Related party transactions
Outlook for 2017
Corporate developments
Development projects update
Wassa operations
Bogoso/Prestea operations
Summarized quarterly financial results
Selected annual information
Use of proceeds from financing
Liquidity and financial condition
Liquidity outlook
18
19
20
22
25
28
28
28
29
30
Off-balance sheet arrangements
Non-GAAP financial measures
Outstanding share data
Critical accounting judgements,
estimates and assumptions
Changes in accounting policies
Financial instruments
Disclosures about risks
Controls and procedures
Risk factors and additional information
31
31
31
32
36
37
37
37
38
38
39
12
| GOLDEN STAR RESOURCES MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the
consolidated financial condition and results of operations of Golden Star Resources Ltd. and its subsidiaries (“Golden Star” or “the Company”
or “we” or “our”). This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in
conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2016, which are
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). This MD&A includes information available to, and is dated, February 21, 2017. Unless noted otherwise, all currency amounts are stated
in U.S. dollars and all information presented in this MD&A is prepared in accordance with IFRS.
Cautionary note regarding forward-looking information
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking
statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, concerning the business, operations and
financial performance and condition of Golden Star. Generally, forward-looking information and statements can be identified by the use of
forward-looking terminology such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”,
“believes” or variations of such words and phrases (including negative or grammatical variations) or statements that certain actions, events
or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative connotation thereof. Forward-looking
information and statements in this MD&A include, but are not limited to, information or statements with respect to: production, cash operating
costs and all-in sustaining costs estimates for 2017; the timing for transforming Wassa and Prestea into lower cost producers; the impact of the
brownfield underground development projects at Wassa and Prestea on the Company; the ability of the Company to transform into a reliable
and stable low cost producer when both underground projects are in full production and the timing for such production; Wassa and Prestea
Underground mines being in commercial production by the end of 2017 and full production in 2018; Wassa’s 2017 production level, as well as
decreases in grade and strip ratio during 2017; gold production increases at Wassa Underground from the third quarter of 2017 onwards;
accessing the transverse stopes of the B Shoot at Wassa Underground and the timing thereof; the B Shoot being a higher grade area of the
Wassa Underground ore body; the conclusion of production at the Prestea Open Pits during the third quarter of 2017; the commencement of
mining and production from the Mampon deposit during the second quarter of 2017 and the conclusion of mining and production from
Mampon in the third quarter of 2017; production at Prestea Underground during the development phase of the project; construction activities
at Prestea Underground advancing according to schedule and stoping starting in the second quarter of 2017; total construction spending
at Prestea Underground; pre-commercial production revenue at Prestea Underground; the Company’s debt repayment and servicing
obligations during 2017; the ability to defer discretionary capital spending in 2017 and the amount that can be deferred; the manner in which
the Company will repay the outstanding principal balance of the 5% Convertible Debentures; expected rehabilitation provisions; sustaining and
development capital expenditures estimates for 2017; total capital expenditures expected to be incurred at Prestea Underground and Wassa
in 2017; the amounts of capital to be spent on various activities at Wassa and Prestea; exploration spending during 2017; the change to Alimak
stoping at Prestea Underground mine and the safety and efficiency of such method of mining at Prestea Underground mine; the timing of
stoping at Prestea Underground mine; the sufficiency of the Company’s existing cash balance; the ounces and grade of, and timing for mining
at Mampon; working capital, debt repayments and requirements for additional capital; and the ability of the Company to repay the
outstanding principal amount of the 5% Convertible Debentures when due.
Forward-looking information and statements are made based upon certain assumptions and other important factors that, if untrue, could
cause the actual results, performance or achievements of Golden Star to be materially different from future results, performance or
achievements expressed or implied by such statements. Such statements and information are based on numerous assumptions regarding
present and future business strategies and the environment in which Golden Star will operate in the future, including the price of gold,
anticipated costs and ability to achieve goals. Certain important factors that could cause actual results, performances or achievements to
differ materially from those set forth in the forward-looking information and statements include, among others, gold price volatility,
discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational
and development risks, litigation risks, liquidity risks, suppliers suspending or denying delivery of products or services, regulatory restrictions
(including environmental regulatory restrictions and liability), actions by governmental authorities (including changes in taxation), currency
fluctuations, the speculative nature of gold exploration, the global economic climate, dilution, share price volatility, the availability of capital
on reasonable terms or at all, local and community impacts and issues, results of pending or future feasibility studies, competition, loss of key
employees, additional funding requirements and defective title to mineral claims or property. Although Golden Star has attempted to identify
important factors that could cause actual results, performance or achievements to differ materially from those described in forward-looking
information and statements, there may be other factors that cause actual results, performance or achievements not to be as anticipated,
estimated or intended.
Forward-looking information and statements are subject to known and unknown risks, uncertainties and other important factors that may
cause the actual results, performance or achievements of Golden Star to be materially different from those expressed or implied by such
forward-looking information and statements, including but not limited to: risks related to international operations, including economic and
political instability in foreign jurisdictions in which Golden Star operates; risks related to current global financial conditions; actual results of
current exploration activities; environmental risks; future prices of gold; possible variations in mineral reserves and mineral resources, grade
13
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
or recovery rates; mine development and operating risks; an inability to obtain power for operations on favourable terms or at all; mining
plant or equipment breakdowns or failures; an inability to obtain products or services for operations or mine development from vendors
and suppliers on reasonable terms, including pricing, or at all; accidents, labor disputes and other risks of the mining industry; delays in
obtaining governmental approvals or financing or in the completion of development or construction activities; risks related to indebtedness
and the service of such indebtedness, as well as those factors discussed in the section entitled “Risk Factors” in Golden Star’s Annual
Information Form for the year ended December 31, 2015. Although Golden Star has attempted to identify important factors that could cause
actual results, performances and achievements to differ materially from those contained in forward-looking information and statements, there
may be other factors that cause results, performance and achievements not to be as anticipated, estimated or intended. There can be no
assurance that such statements will prove to be accurate, as actual results, performance, and achievements and future events could differ
materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information
and statements. Forward-looking information and statements are made as of the date hereof and accordingly are subject to change after
such date. Except as otherwise indicated by Golden Star, these statements do not reflect the potential impact of any non-recurring or other
special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be
announced or that may occur after the date hereof. Forward-looking information and statements are provided for the purpose of providing
information about management’s current expectations and plans and allowing investors and others to get a better understanding of the
Company’s operating environment. Golden Star does not undertake to update any forward-looking information and statements that are
included in this MD&A, except as required by applicable securities laws.
Cautionary note regarding reserves and resources
Scientific and technical information contained in this MD&A was reviewed and approved by Dr. Martin Raffield, Senior Vice-President,
Technical Services for Golden Star who is a “qualified person” as defined by National Instrument 43-101 – Standards of Disclosure for Mineral
Projects (“NI 43-101”) and by S. Mitchel Wasel, BSc Geology who is a Qualified Person pursuant to NI 43-101. Mr. Wasel is Vice President
Exploration for Golden Star and an active member of the Australasian Institute of Mining and Metallurgy. All mineral reserves and mineral
resources have been calculated in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) and
in compliance with the requirements of NI 43-101. All mineral resources are reported inclusive of mineral reserves. Mineral resources which are
not mineral reserves do not have demonstrated economic viability. Information on data verification performed on, and other scientific and
technical information relating to, the mineral properties mentioned in this MD&A that are considered to be material mineral properties of the
Company are contained in Golden Star’s Annual Information Form for the year ended December 31, 2015 and the following current technical
reports for those properties available at www.sedar.com: (i) Wassa – “NI 43-101 Technical Report on feasibility study of the Wassa open pit mine
and underground project in Ghana” effective date December 31, 2014; (ii) Bogoso – “NI 43-101 Technical Report on Resources and Reserves
Golden Star Resources Ltd., Bogoso Prestea Gold Mine, Ghana” effective date December 31, 2013; and (iii) Prestea Underground – “NI 43-101
Technical Report on a Feasibility Study of the Prestea Underground Gold Project in Ghana” effective date November 3, 2015.
Cautionary note to U.S. Investors
This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ materially from the
requirements of United States securities laws applicable to U.S. companies. Information concerning our mineral properties has been prepared
in accordance with the requirements of Canadian securities laws, which differ in material respects from the requirements of the Securities and
Exchange Commission (the “SEC”) set forth in Industry Guide 7. Under the SEC’s Industry Guide 7, mineralization may not be classified as a
“reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the
time of the reserve determination, and the SEC does not recognize the reporting of mineral deposits which do not meet the SEC Industry
Guide 7 definition of “Reserve”. In accordance with NI 43-101, the terms “mineral reserve”, “proven mineral reserve”, “probable mineral reserve”,
“mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in accordance with
CIM standards. While the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource”
are recognized and required by NI 43-101, the SEC does not recognize them. You are cautioned that, except for that portion of mineral
resources classified as mineral reserves, mineral resources do not have demonstrated economic viability. Inferred mineral resources have a
high degree of uncertainty as to their existence and as to whether they can be economically or legally mined. It cannot be assumed that all or
any part of an inferred mineral resource will ever be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any
part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category.
Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded into
mineral reserves.
OVERVIEW OF GOLDEN STAR
Golden Star is an established gold producer that holds a 90% interest in the Wassa and Bogoso/Prestea gold mines in Ghana. The Company
has two open pit producing mines (Wassa Main Pit and the Prestea Open Pits), one producing underground mine (Wassa Underground) and
one underground development project (Prestea Underground). Wassa Underground achieved commercial production on January 1, 2017 and
Prestea Underground is expected to achieve commercial production in mid-2017. The Company is a reporting issuer or the equivalent in all
provinces of Canada, in Ghana and in the United States, and files disclosure documents with securities regulatory authorities in Canada, Ghana
and with the SEC in the United States.
14
| GOLDEN STAR RESOURCES SUMMARY OF OPERATING AND FINANCIAL RESULTS
OPERATING SUMMARY
Wassa Main Pit gold sold
Wassa Underground gold sold
Bogoso/Prestea gold sold
Total gold sold
Total gold produced
Average realized gold price
Cost of sales per ounce – Consolidated1
Cost of sales per ounce – Wassa1
Cost of sales per ounce – Bogoso/Prestea1
Cash operating cost per ounce – Consolidated1
Cash operating cost per ounce – Wassa1
Cash operating cost per ounce – Bogoso Prestea1
All-in sustaining cost per ounce – Consolidated1
FINANCIAL SUMMARY
Gold revenues
Cost of sales excluding depreciation and amortization
Depreciation and amortization
Mine operating margin/(loss)
General and administrative expense
(Gain)/Loss on fair value of financial instruments, net
Loss on repurchase of 5% Convertible Debentures, net
Net income/(loss) attributable to Golden Star shareholders
Adjusted net income/(loss) attributable to Golden Star
shareholders2
Income/(loss) per share attributable to Golden Star
shareholders – basic and diluted
Adjusted income/(loss) per share attributable to
Golden Star shareholders – basic2
Cash provided by operations
Cash provided by operations before working capital changes3
Cash provided by operations per share – basic
Cash provided by operations before working capital
changes per share – basic and diluted
Capital expenditures
oz
oz
oz
oz
oz
$/oz
$/oz
$/oz
$/oz
$/oz
$/oz
$/oz
$/oz
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$/share
$/share
$’000
$’000
$/share
$/share
$’000
Three months ended
December 31,
For the years ended
December 31,
2016
2015
2016
2015
21,076
7,867
23,893
52,836
53,403
1,184
1,114
1,430
836
880
1,090
694
1,197
53,255
43,994
6,117
3,144
517
(888)
—
3,446
64
0.01
0.01
25,234
23,896
0.08
0.07
23,779
30,880
—
20,498
51,378
52,141
1,098
903
813
1,040
715
625
849
893
56,420
39,354
7,054
10,012
2,521
(1,658)
—
13,781
93,284
11,062
89,517
193,863
194,054
1,211
1,060
1,186
928
872
941
800
1,093
221,290
172,616
21,160
27,514
25,754
25,628
11,594
(39,647)
107,751
—
113,902
221,653
222,416
1,151
1,276
1,061
1,479
976
838
1,108
1,149
255,187
245,494
37,339
(27,646)
14,281
(1,712)
—
(67,681)
7,003
11,183
(28,355)
0.05
(0.13)
(0.26)
0.03
12,633
29,725
0.05
0.11
13,726
0.04
53,249
75,457
0.18
0.26
84,356
(0.11)
60,148
53,437
0.23
0.21
57,051
1
2
3
See “Non-GAAP Financial Measures” section for a reconciliation of cost of sales per ounce, cash operating cost per ounce and all-in sustaining cost per ounce to cost of
sales before depreciation and amortization.
See “Non-GAAP Financial Measures” section for a reconciliation of adjusted net income/(loss) attributable to Golden Star shareholders and adjusted income/(loss) per
share attributable to Golden Star shareholders to net income/(loss) attributable to Golden Star shareholders and income/(loss) per share attributable to Golden Star
shareholders.
See “Non-GAAP Financial Measures” section for an explanation of the calculation of cash provided by operations before working capital changes.
15
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Gold sales of 52,836 ounces in the fourth quarter of 2016 were 3% higher than the 51,378 ounces sold in the same period in 2015.
Bogoso/Prestea gold sales in the fourth quarter of 2016 were 17% higher than the same period in 2015 due to higher throughput and higher
ore grade processed. Gold sales from Wassa Main Pit decreased to 21,076 ounces due mainly to a 21% decrease in ore grade processed as
a result of mining in a lower grade zone of the Wassa Main Pit. The incidental revenue from the 7,867 ounces attributed to the Wassa
Underground Mine is accounted as a reduction to the capital expenditures in the development of the Wassa Underground as the Wassa
Underground Mine was not yet in commercial production by December 31, 2016. For the year ended December 31, 2016, gold sales of
193,863 ounces were 13% lower than the 221,653 ounces sold in the same period in 2015, due primarily to lower throughput at Bogoso/Prestea
as 2016 production was exclusively from the lower cost Prestea non-refractory operation.
Consolidated cost of sales per ounce was $1,114 in the fourth quarter of 2016, 23% higher than $903 in the same period in 2015.
Consolidated cash operating cost per ounce was $880 in the fourth quarter of 2016, 23% higher than $715 in the same period in 2015.
The increase in both the consolidated cost of sales per ounce and the consolidated cash operating cost per ounce was due to the decrease
in gold sold attributable to the Wassa Main Pit as a result of a 31% decrease in ore grade processed compared to the same period in 2015.
These higher costs per ounce at Wassa were offset partially by the lower costs per ounce at Bogoso/Prestea as production at Bogoso/
Prestea increased compared to the same period in 2015. The impact expected from cost of sales per ounce and the cash operating cost per
ounce at the Wassa Underground Mine do not affect the consolidated cost of sales per ounce or the consolidated cash operating cost per
ounce as costs relating to the Wassa Underground Mine are accounted for as a reduction to the capital expenditures in the development
of the Underground Mine as commercial production had not been achieved by December 31, 2016. For the year ended December 31, 2016,
consolidated cost of sales per ounce was $1,060 compared to $1,276 for the same period in 2015, representing a 17% decrease. Consolidated
cash operating cost per ounce was $872 for the year ended December 31, 2016, compared to $976 in the same period in 2015, representing
a 11% decrease. Both consolidated cost of sales per ounce and cash operating cost per ounce decreased in 2016 compared to the prior year
due to the suspension of the high cost refractory plant at Bogoso/Prestea, which resulted in a $68.6 million reduction in cost of sales in 2016.
Gold revenues totaled $53.3 million in the fourth quarter of 2016, compared to $56.4 million in the same period in 2015. The 5%
decline in gold revenues was a result of fewer ounces sold at Wassa Main Pit, partially offset by a higher realized gold price in the fourth
quarter of 2016 as compared to the same period in 2015. The decline in ounces sold at Wassa was a result of a decrease in ore grade
processed. For the year ended December 31, 2016, gold revenue totaled $221.3 million, a 13% decline compared to $255.2 million in the same
period in 2015 due primarily to lower gold sales at Bogoso/Prestea following the suspension of the high cost refractory operation at Bogoso
and lower gold sales at Wassa as a result of lower ore grade processed.
Cost of sales excluding depreciation and amortization in the fourth quarter of 2016 totaled $44.0 million compared to
$39.4 million in the same period in 2015. The 12% increase in cost of sales excluding depreciation and amortization for the fourth quarter
of 2016 was due mainly to higher mining costs and lower build-up of inventories at Wassa. For the year ended December 31, 2016, cost of
sales excluding depreciation and amortization totaled $172.6 million, down 30% from $245.5 million in the same period in 2015, due primarily
to a decrease in mine operating expenses at the Bogoso/Prestea mine. Lower mine operating expenses were a result of exclusively mining
and processing lower cost Prestea oxide ore through the non-refractory plant in 2016 as compared to processing primarily refractory ore
through the higher cost refractory plant in 2015.
Depreciation and amortization expense totaled $6.1 million in the fourth quarter of 2016 compared to $7.1 million in the same
period in 2015. The decrease in depreciation and amortization expense in the fourth quarter of 2016 was primarily the result of higher
mineral reserve and resource estimates at the Bogoso/Prestea compared to the same period in 2015. For the year ended December 31, 2016,
depreciation and amortization totaled $21.2 million compared to $37.3 million in the same period in 2015, primarily a result of the lower
production at both operations and higher reserve and resource estimates at the Bogoso/Prestea compared to prior year.
General and administrative costs totaled $0.5 million in the fourth quarter of 2016, compared to $2.5 million in the same period
in 2015. The decrease in general and administrative costs in the fourth quarter of 2016 was due primarily to a $2.3 million share-based
compensation recovery. General and administrative costs excluding non-cash share-based compensation was $2.8 million in the fourth
quarter of 2016 compared to $2.3 million in the same period in 2015. For the year ended December 31, 2016, general and administrative
costs totaled $25.8 million compared to $14.3 million in the same period in 2015. The increase was due to the higher non-cash share-based
compensation accrued for the year ended December 31, 2016, compared to the same periods in 2015. Share-based compensation increased
in 2016 as a result of significant improvement in the Company’s share price. General and administrative costs excluding non-cash share-
based compensation was $11.9 million in 2016, slightly lower than the $12.3 million in the same period in 2015.
•
•
•
•
•
•
16
| GOLDEN STAR RESOURCES •
•
•
•
•
The Company recorded a gain of $0.9 million on financial instruments in the fourth quarter of 2016 compared to $1.7 million in the
same period in 2015. The gain in the fourth quarter of 2016 was comprised of a $1.0 million gain on forward and collar contracts and a
$0.5 million non-cash revaluation gain on warrants, offset by a $0.5 million non-cash revaluation loss of the derivative liability of the 7%
Convertible Debentures and a $0.1 million non-cash revaluation loss on the 5% Convertible Debentures. The $1.7 million fair value gain
recognized in the fourth quarter of 2015 was comprised of a $1.6 million non-cash revaluation gain on the 5% Convertible Debentures
and a $0.1 million non-cash revaluation gain on warrants. The valuation techniques used for these financial instruments are disclosed
in the “Financial Instruments” section of this MD&A. For the year ended December 31, 2016, the Company recorded $37.2 million of losses
on financial instruments compared to a gain of $1.7 million in the same period in 2015. The losses in 2016 were comprised of a $17.2 million
non-cash revaluation loss on the 5% Convertible Debentures, a $11.6 million loss on repurchases of the 5% Convertible Debentures, a
$3.8 million non-cash revaluation loss of the derivative liability of the 7% Convertible Debentures, a $2.3 million non-cash revaluation loss
on warrants and a $2.3 million loss on forward and collar contracts.
Net income attributable to Golden Star shareholders for the fourth quarter of 2016 totaled $3.4 million or $0.01 income per share,
compared to a net income of $13.8 million or $0.05 income per share for the same period in 2015. The decrease in net income
attributable to Golden Star shareholders for the fourth quarter was due to lower mine operating margin at Wassa and lower other income.
Mine operating margin was lower at Wassa due to lower revenue as a result of lower production at the Wassa Main Pit in the fourth quarter
of 2016. Other income was lower in the fourth quarter of 2016 as there was a gain of $5.7 million on reduction of the Bogoso refractory
operation asset retirement obligation recognized in the fourth quarter in 2015. For the year ended December 31, 2016, net loss attributable
to Golden Star shareholders totaled $39.6 million or $0.13 loss per share, compared to a net loss of $67.7 million or $0.26 loss per share in the
same period in 2015. The decrease in net loss attributable to Golden Star shareholders for 2016 was due mainly to higher mine operating
margin at Bogoso and no impairment charges for 2016 compared to $34.9 recognized in 2015. These were partially offset by higher losses
on financial instruments and higher non-cash share-based compensation expenses.
Adjusted net income attributable to Golden Star shareholders (see “Non-GAAP Financial Measures” section) was $0.1 million in the
fourth quarter of 2016, compared to $7.0 million for the same period in 2015. The lower adjusted net income attributable to Golden
Star shareholders in the fourth quarter of 2016 compared to the same period in 2015 was due to the mine operating loss at Wassa in the
fourth quarter of 2016 resulting from lower revenue from gold sales attributable to the Wassa Main Pit. For the year ended December 31, 2016,
adjusted net income attributable to Golden Star shareholders (see “Non-GAAP Financial Measures” section) was $11.2 million compared to
an adjusted loss of $28.4 million attributable to Golden Star shareholders in the same period in 2015. The adjusted net income attributable
to Golden Star shareholders in 2016 compared to the adjusted net loss attributable to Golden Star shareholders in 2015 was principally due
to higher mine operating margin at the Bogoso/Prestea operation in 2016.
Cash provided by operations before working capital was $23.9 million for the fourth quarter of 2016, compared to $29.7 million in
the same period in 2015. The decrease in cash provided by operations before working capital was impacted primarily by the mine
operating loss at Wassa in the fourth quarter of 2016. For the year ended December 31, 2016, cash provided by operations before working
capital was $75.5 million compared to $53.4 million in the same period in 2015 due mainly to the higher mine operating margin at Bogoso/
Prestea, partially offset by the lower mine operating margin at Wassa and the lower amount of advance payments under the Streaming
Agreement (as defined below) received in 2016 compared to 2015. Total advance payment of $60.0 million under the Streaming Agreement
was received in 2016 compared to $75.0 million in 2015.
Capital expenditures for the fourth quarter of 2016 totaled $23.8 million compared to $13.7 million in the same period in 2015.
Capital expenditures for the fourth quarter and year ended December 31, 2016 were higher than the same periods in 2015 primarily due to
expenditures on development activities relating to the Wassa Underground Mine and the Prestea Underground Mine in 2016. The major
capital expenditures in the fourth quarter of 2016 at Wassa included $2.8 million of expenditures relating to the development of the Wassa
Underground Mine and $3.3 million for the improvement of the tailings storage facility. Capital expenditures at Bogoso/Prestea during the
fourth quarter of 2016 included $10.8 million on expenditures relating to the development of the Prestea Underground Mine and $2.2 million
on the Prestea Open Pit Mines. For the year ended December 31, 2016, capital expenditures totaled $84.4 million compared to $57.1 million in
the same period in 2015.
17
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
OUTLOOK FOR 2017
Production and cost guidance
Wassa Main Pit
Wassa Underground
Wassa Consolidated
Prestea Open Pit Mines
Prestea Underground¹
Prestea Consolidated
CONSOLIDATED
Gold production
thousands of ounces
Cash
operating costs
$ per ounce
All-in
sustaining costs
$ per ounce
85 – 95
60 – 65
145 – 160
65 – 70
45 – 50
110 – 120
255 – 280
830 – 915
715 – 780
780 – 860
970 – 1,070
1
Costs incurred at Prestea Underground will be capitalized until commercial production is achieved. As a result, pre-commercial production costs are reflected in the
Company’s development capital expenditure guidance set out in the table below and are not included in the Company’s cash operating cost per ounce guidance set
out in the table above.
Wassa Main Pit – Production is expected to remain at approximately the same level as 2016. Grade and strip ratio are expected to decline
slightly in 2017 resulting in slightly lower production guidance.
Wassa Underground – Commercial production at Wassa Underground was achieved on January 1, 2017. Gold production is anticipated to
increase significantly from the third quarter of 2017 onwards as Golden Star’s mining operations begin to access the transverse stopes of the
B Shoot, which is a higher grade area of the Wassa Underground ore body.
Prestea Open Pit Mines – Production is expected to be lower in 2017 relative to the prior year as Golden Star expects production to conclude
at the Prestea Open Pits during the third quarter of 2017. Production from the Mampon deposit, which is expected to commence during the
second quarter of 2017 and conclude in the third quarter of 2017, will slightly offset this decrease.
Prestea Underground – Commercial production at Prestea Underground is expected to be achieved in mid-2017. During the development
phase of the Prestea Underground Mine, the Company expects to produce 7,000 – 7,500 ounces in 2017. As these ounces are expected to
be produced prior to the commercial production phase of the mine, the revenues from these ounces will be credited against the capital
expenditures incurred.
Capital expenditures guidance
Wassa Main Pit
Wassa Underground
Prestea Open Pit Mines
Prestea Underground
Exploration
CONSOLIDATED
Sustaining
$ millions
Development
$ millions
Total
$ millions
5.9
9.0
5.0
0.4
–
20.3
1.1
3.4
–
31.2
2.4
38.1
7.0
12.4
5.0
31.6
2.4
58.4
Wassa – The Company expects to spend $5.9 million and $9.0 million on sustaining capital expenditures at the Wassa Main Pit and Wassa
Underground operations, respectively. The Company expects to spend $1.1 million of capital on development at the Wassa Main Pit Mine
related to the completion of the tailings storage facility and $3.4 million at the Wassa Underground Mine.
Prestea – The Company expects to spend $5.0 million and $0.4 million on sustaining capital expenditures at the Prestea Open Pits and Prestea
Underground operations, respectively. The Company expects to spend $31.2 million on the development of the Prestea Underground Mine,
which is expected to achieve commercial production in mid-2017. Revenue earned on underground ounces produced will be credited against
capital expenditures until commercial production is achieved.
18
| GOLDEN STAR RESOURCES CORPORATE DEVELOPMENTS
Gold prices
Spot gold prices increased from $1,062 per ounce at December 31, 2015 to $1,159 per ounce on December 30, 2016. The Company realized
an average gold price of $1,211 per ounce for gold sales during 2016, compared to an average realized gold price of $1,151 per ounce for 2015.
The spot gold price on February 21, 2017 was $1,237 per ounce.
Revenue from spot sales during 2016 resulted in an average realized price of $1,245 per ounce whereas revenue recognized from the gold
purchase and sale agreement (the “Streaming Agreement”) with RGLD Gold AG (“RGLD”) resulted in an average realized price of $886 per ounce.
Revenue – Stream arrangement
Cash proceeds
Deferred revenue recognized
Revenue – Spot sales
TOTAL REVENUE
Year ended
December 31, 2016
$’000
Ounces
Realized
price
$
$
4,385
11,267
15,652
205,638
17,662
165,136
$
886
1,245
$ 221,290
182,798
$
1,211
Bought deal
On February 7, 2017, the Company completed a bought deal public offering which resulted in the issuance of 31,363,950 common shares
including 4,090,950 common shares issued upon full exercise of the over allotment option, at a price CAD$1.10 per share for net proceeds
of $24.8 million.
Wassa Underground Mine achieved commercial production
On January 6, 2017, the Company announced that commercial production had been achieved at its Wassa Underground Mine in Ghana,
effective January 1, 2017. Gold production is anticipated to continue to ramp up during 2017 as Golden Star’s mining operations begin to access
the B Shoot, which is a higher grade area of the Wassa Underground ore body. The Company plans to begin longitudinal stoping of the
B Shoot in the first quarter of 2017, with the larger, transverse stopes expected to be accessed in the third quarter of 2017.
Conversions of 7% Convertible Debentures
During the fourth quarter of 2016, $5.0 million principal outstanding of the 7% convertible debentures were converted into 5,555,667 shares.
Subsequent to the year ended December 31, 2016, a further $7.0 million principal outstanding of the 7% Convertible Debentures were converted
to 7,778,886 shares. In total, $12.0 million principal outstanding of the 7% Convertible Debentures has been converted into 13,335,553 common
shares at February 21, 2017. Total principal that remains outstanding on the 7% Convertible Debentures is $53.0 million.
Debt restructuring
During the year ended December 31, 2016, the Company entered into the following financing transactions to strengthen its balance sheet:
•
•
On August 3, 2016, the Company completed a public offering of 40,000,000 common shares at a price of $0.75 per share. The underwriters
for the offering exercised in full their option to purchase an additional 6,000,000 common shares. As a result, a total of 46,000,000 common
shares were sold by the Company for gross proceeds of $34.5 million (net proceeds of $31.8 million).
On August 3, 2016, the Company also completed a private placement of $65.0 million aggregate principal amount of the 7% Convertible
Senior Notes due 2021 (the “7% Convertible Debentures”). As part of the offering of the 7% Convertible Debentures, the Company exchanged
$42.0 million principal amount of its outstanding 5% Convertible Debentures due June 1, 2017 (the “5% Convertible Debentures”) for an equal
principal amount of the 7% Convertible Debentures. The principal amount exchanged is included in the total aggregate principal amount of
the 7% Convertible Debentures issued. The Company did not receive any cash proceeds from the exchange. The net proceeds received from
this private placement was $20.7 million. During the year ended December 31, 2016, debt holders converted $5.0 million principal amount of
the 7% Convertible Debentures. As at December 31, 2016, $60.0 million principal amount of the 7% Convertible Debentures remain
outstanding and will mature on August 15, 2021.
19
ANNUAL REPORT 2016 |
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
•
•
The net cash proceeds from the above-referenced offering of common shares together with the net proceeds from the private placement
of 7% Convertible Debentures were used to strengthen the Company’s balance sheet by retiring certain outstanding indebtedness.
In August 2016, the Company repaid the remaining outstanding balance of $22.4 million of its loan with Ecobank Ghana Limited.
On August 3, 2016, the Company also repurchased $18.2 million principal amount of its 5% Convertible Debentures at face value.
Total repurchases of the 5% Convertible Debentures during 2016 totaled $21.8 million in principal amount. As at December 31, 2016,
$13.6 million principal amount of the 5% Convertible Debentures remain outstanding and will mature on June 1, 2017.
On May 9, 2016, the Company completed a bought deal public offering which resulted in 22,750,000 common shares sold at a price of
$0.66 per share for gross proceeds of $15.0 million (net proceeds of $13.7 million). In May 2016, the Company also entered into an agreement
with a significant current account creditor to settle $36.5 million of current liabilities. Under this agreement, the Company made a payment
of $12.0 million in the second quarter of 2016 and deferred payment of the remaining $24.5 million until January 2018, after which the
outstanding balance will be repaid in equal installments for 24 months commencing January 31, 2018. Interest of 7.5% per annum will
accrue on the outstanding balance and will be payable beginning in January 2017.
Mining lease for high grade Mampon deposit received
On October 27, 2016, the Company announced that it had received a mining lease for the Mampon deposit (“Mampon”) in Ghana. Mampon
is a high grade, oxide deposit containing approximately 45,000 ounces of gold at 4.60 grams per tonne. Following the receipt of the mining
lease, the Company received the environmental permit in January 2017 and expects to start mining Mampon in the second quarter of 2017.
Advance payment under Streaming Agreement received
During the fourth quarter of 2016, the Company received an advance payment of $20.0 million pursuant to the Streaming Agreement with
RGLD. On January 3, 2017, the Company received the final $10.0 million of scheduled advance payment pursuant to the Streaming Agreement.
Since the inception of the Streaming Agreement in July 2015, the Company has received total advance payments of $145.0 million, which
represents the full expected proceeds pursuant to the Streaming Agreement.
Forward and collar contracts
During the first quarter of 2016, the Company initiated a gold hedging program to limit its exposure to fluctuations in the gold price during the
development phase of the Wassa Underground and Prestea Underground projects. During the year ended December 31, 2016, the Company
realized a loss of $2.3 million on settled costless collars and forward sales contracts. The Company has no outstanding forward and collar
contracts at December 31, 2016.
Appointment of Gil Clausen to the Board of Directors
On July 18, 2016, Golden Star further strengthened its board by appointing Gil Clausen. Mr. Clausen is the president and Chief Executive Officer
of Brio Gold and former president and chief executive officer and director of Augusta Resource Corporation. He also serves as an independent
director of Plata Latina Minerals Corporation. With over 30 years of executive, financial, developmental and operational industry experience,
Mr. Clausen has been responsible for executing growth strategies for mining companies on a range of continents and across a variety of
commodities.
DEVELOPMENT PROJECTS UPDATE
Wassa Underground development
Wassa Underground commenced pre-commercial production in early July 2016. The successful blasting of the first stope delivered the first ore
from the new underground mine to the Wassa processing plant, where it was blended with ore from Wassa Main Pit. Underground ore was
mined using longitudinal longhole stoping, although the primary mining method that will be used in Wassa Underground from the third
quarter of 2017 is transverse stoping.
The development of Wassa Underground’s infrastructure and all plant modifications have been completed. Underground development has
progressed sufficiently in order to accommodate the near term mine plan, including a twin decline and a ventilation system. Construction
activities were completed at the end of the fourth quarter of 2016. Commercial production was declared at Wassa Underground Mine in
January 2017.
The first stopes are in the upper part of the F Shoot, which is one of the more moderate grade areas of the underground mine. Golden Star is
using the F Shoot mineralization for test stoping and to complete the training of our underground personnel as the mine development moves
towards the higher grade B Shoot.
Due to this focus on the F Shoot, Golden Star expects to begin mining the first stopes of the B Shoot in the first quarter of 2017. Production from
Wassa Underground during 2016 was 11,062 ounces recovered.
20
| GOLDEN STAR RESOURCES The capital expenditures for Wassa Underground are shown in the table below:
(In millions of U.S. dollars)
Capital spending
Capitalized borrowing costs
CAPITAL EXPENDITURES
Fourth quarter
2016
2016
Project-to-date
$
1.2
0.2
$
$
20.0
3.8
$
1.4
$
23.8
$
39.8
6.3
46.1
Prestea
The Prestea mine consists of an underground mine that has been in existence for over 100 years along with adjacent surface deposits.
The Prestea mine is located 16 km south of the Bogoso mine and processing plants in the town of Prestea. The underground mine is currently
being refurbished and drive development commenced in the third quarter of 2016. A number of high grade surface deposits exist to the south
of the underground mine which the Company is currently mining and processing through the non-refractory processing plant.
PRESTEA UNDERGROUND MINE
Refurbishment work continued to progress as expected at the high grade Prestea Underground Mine during the fourth quarter of 2016.
Manroc Developments Inc. (“Manroc”) was selected following a competitive bid process, involving a number of mining contractors. Manroc
specializes in Alimak stoping, a mechanized shrinkage mining method. Manroc’s role will be to provide Alimak raise mining, stoping and
equipment maintenance training to Golden Star personnel over a three year contract period.
Alimak stoping was selected as the mining method for Prestea Underground Mine due to its safety and efficiency benefits over conventional
shrinkage mining. Prestea Underground Mine is a narrow, high grade deposit, with Mineral Reserves of 1.0Mt at 14.02g/t for 469,000 ounces
(based on mineral reserves and mineral resources estimates at December 31, 2015) and further exploration potential.
Underground development continued with a total development advance of approximately 420 meters completed by mid-February 2017.
This development focused on crosscut advancement towards the West Reef and construction of a workshop and electrical bays and the
slashing of existing drives to a size suitable for mechanized load-haul-dump equipment.
The rock winder upgrade progressed to 95% completion in 2016 with commissioning completed in January 2017, enabling an increase in
hoisting capacity to satisfy the production profile in 2017. The mining rate in the Prestea Underground Mine is expected to be approximately
650 tonnes per day and the shaft’s capacity is expected to be approximately 1,200 tonnes per day.
In early January 2017 the West Reef ore body was intersected on 24 Level for the first time by Golden Star’s mining operations in two separate
cross cuts. The focus is now on establishing the infrastructure and entrance into the first of the stopes. During the first quarter of 2017,
650 tonnes of material was hauled and hoisted from 24 Level to surface in order to test the haulage and hoisting system. Ore is currently
being stockpiled at the processing facility at Bogoso, with the intention to run a batch through as an early test. Construction activities continue
to advance according to schedule and stoping is expected to start in the second quarter of 2017, with commercial production anticipated
to be declared in mid-2017.
The capital expenditures for Prestea Underground Mine are shown in the table below:
(In millions of U.S. dollars)
Capital spending
Capitalized borrowing costs
CAPITAL EXPENDITURES
Fourth quarter
2016
2016
Project-to-date
$
9.6
1.2
$
$
34.3
2.5
$
10.8
$
36.8
$
39.4
3.7
43.1
Total construction capital expenditures prior to commercial production, net of pre-commercial production revenue, is expected to be
$61 million for the underground mine. The Company expects a total capital expenditures, net of pre-commercial production revenue,
of approximately $18 million to be incurred in the first half of 2017 prior to achieving commercial production in the second half of 2017.
21
ANNUAL REPORT 2016 |
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
WASSA OPERATIONS
Through a 90% owned subsidiary, Golden Star (Wassa) Limited, the Company owns and operates the Wassa Main Pit (an open pit mine)
and Wassa Underground (an underground mine). The Wassa Operations are located in the southwestern region of Ghana, approximately
35 kilometers northeast of the town of Tarkwa. Wassa has a non-refractory processing plant (the “Wassa processing plant”) consisting of a
carbon-in-leach (“CIL”) system with a capacity of 2.7 million tonnes per annum. Ore from both the Wassa Main Pit and Wassa Underground is
processed at the Wassa processing plant.
WASSA FINANCIAL RESULTS
Revenue
Mine operating expenses
Severance charges
Royalties
Operating costs to metals inventory
Inventory net realizable value adjustment
Cost of sales excluding depreciation and amortization
Depreciation and amortization
Mine operating (loss)/margin
Capital expenditures
WASSA OPERATING RESULTS
Ore mined
Waste mined
Ore processed – Main Pit
Ore processed – Underground
Ore processed – total
Grade processed – Main Pit
Grade processed – Underground
Recovery
Gold produced – Main Pit
Gold produced – Underground
Gold produced – total
Gold sold – Main Pit
Gold sold – Underground
Gold sold – total
Cost of sales per ounce1
Cash operating cost per ounce1
Three months ended
December 31,
For the years ended
December 31,
2016
2015
2016
2015
$’000 $
24,785 $
33,760 $ 112,341
$ 123,189
$’000
$’000
$’000
$’000
$’000
$’000
$’000
23,139
–
1,770
(161)
1,190
25,938
4,202
22,532
–
1,728
(3,231)
–
21,029
4,068
92,938
113
6,483
(5,149)
1,190
95,575
15,094
$’000 $
(5,355)
$
8,663 $
1,672
$’000
10,155
8,001
41,805
t
t
t
t
g/t
g/t
%
oz
oz
oz
oz
oz
oz
$/oz
$/oz
632,040
2,196,572
593,286
115,602
806,153
2,924,040
620,047
–
708,888
1.22
2.27
92.9
21,411
7,865
29,276
21,076
7,867
28,943
1,430
1,090
620,047
1.77
–
93.9
31,395
–
31,395
30,880
–
30,880
813
625
2,496,817
9,974,537
2,444,339
178,255
2,622,594
1.27
2.06
93.6
93,319
11,062
104,381
93,284
11,062
104,346
1,186
941
95,152
1,816
6,234
(4,886)
1,524
99,840
14,522
8,827
33,912
2,849,061
10,631,663
2,495,176
–
2,495,176
1.46
–
93.4
108,266
–
108,266
107,751
–
107,751
1,061
838
1
See “Non-GAAP Financial Measures” section for a reconciliation of cost of sales per ounce and cash operating cost per ounce to cost of sales excluding depreciation
and amortization.
22
| GOLDEN STAR RESOURCES Three months ended December 31, 2016 compared to three months ended December 31, 2015
PRODUCTION
Gold production was 29,276 ounces for the fourth quarter of 2016, a 7% decrease from the 31,395 ounces produced during the same period
of 2015 due to lower production from ore mined in the Wassa Main Pit as ore grade processed from the Open Pit declined compared to the
same period in 2015 due to mining in a lower ore grade zone, consistent with management’s expectations. 27% of the production in the
fourth quarter of 2016 was attributed to the Wassa Underground operation compared to none in the same period in 2015. Ore grade
processed from the Wassa Underground operation during the fourth quarter of 2016 was 2.27 g/t, compared to 1.22 g/t processed from
the Wassa Main Pit for the same period.
GOLD REVENUES
Gold revenues were $24.8 million for the fourth quarter of 2016, a 27% decrease compared to $33.8 million for the same period in 2015. The
decrease was due to a 32% decrease in ounces of gold sold attributable to the Wassa Main Pit, offset by an increase in the average realized
gold price to $1,176 per ounce in the fourth quarter of 2016, compared to $1,093 per ounce for the same period in 2015. Gold revenue from
incidental gold sales in the fourth quarter of 2016 attributable to the Wassa Underground Mine is accounted for as a reduction to the capital
expenditures for the development of the Wassa Underground Mine as the Wassa Underground Mine had not archived commercial
production by December 31, 2016.
COST OF SALES EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales excluding depreciation and amortization was $25.9 million for the fourth quarter of 2016, compared to $21.0 million incurred
during the same period in 2015. The higher cost of sales was mainly related to the lower build up of inventories and $1.2 million net realizable
value adjustment on inventories recognized in the fourth quarter of 2016. In 2015, significantly more ore was mined than processed resulting
in an inventory credit.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the fourth quarter of 2016 totaled $4.2 million, compared to the $4.1 million recorded for the same period in
2015. The depreciation and amortization in 2016 was primarily impacted by the lower reserve and resource estimates compared to the same
period in 2015.
COSTS PER OUNCE
Cost of sales per ounce for the fourth quarter of 2016 totaled $1,430, up 76% from $813 in the same period in 2015. Cash operating cost per
ounce for the fourth quarter of 2016 totaled $1,090, up 74% from $625 for the same period in 2015. The higher cost of sales per ounce and the
higher cash operating cost per ounce were due to the $1.2 million net realizable value adjustment on inventories recognized in the fourth
quarter of 2016 and a 32% decrease in gold sold attributable to the Wassa Main Pit as a result of a 31% decrease in ore grade processed due
to mining in a lower ore grade zone.
CAPITAL EXPENDITURES
Capital expenditures for the fourth quarter of 2016 totaled $10.2 million compared with $8.0 million during the same period in 2015. Sustaining
capital expenditures were $3.9 million for the three months ended December 31, 2016 compared to $1.1 million for the same period in 2015.
Development capital expenditures were $6.2 million for the three months ended December 31, 2016 compared to $6.9 million in the same
period in 2015. Development capital expenditures in the fourth quarter of 2016 included $2.9 million relating to the development of the Wassa
Underground Mine and $3.3 million for the improvement of the tailings storage facility.
23
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
For the year ended December 31, 2016 compared to year ended December 31, 2015
PRODUCTION
Gold production was 104,381 ounces for the year ended December 31, 2016, a 4% decrease from the 108,266 ounces produced during the
same period in 2015. Production from the Wassa Main Pit was lower in 2016 compared to 2015 due to lower ore grade. For the year ended
December 31, 2016, 11% of the production in 2016 was attributed to the Underground operation in comparison to nil in the same period in 2015.
GOLD REVENUES
Gold revenues were $112.3 million for the year ended December 31, 2016, compared to $123.2 million for the same period in 2015. The decrease
was due to a 14% decrease in ounces of gold sold attributable to the Wassa Main Pit, offset by an increase in the average realized gold
price to $1,204 per ounce for the year ended December 31, 2016, compared to $1,143 per ounce for the same period in 2015. Gold revenue from
incidental gold sales in 2016 attributable to the Wassa Underground Mine is accounted for as a reduction to the capital expenditures for the
development of the Wassa Underground Mine as the Underground Mine had not achieved commercial production by December 31, 2016.
COST OF SALES EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales excluding depreciation and amortization was $95.6 million for the year ended December 31, 2016, compared to $99.8 million
incurred during the same period in 2015. The lower cost of sales in 2016 was mainly related to lower mine operating expenses as a result of less
material mined and lower severance charges.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the year ended December 31, 2016 totaled $15.1 million, compared to the $14.5 million recorded for the same
period in 2015. The higher depreciation and amortization in 2016 was primarily impacted by the lower reserve and resource estimates in 2016
compared to the same period in 2015.
COSTS PER OUNCE
Cost of sales per ounce for 2016 totaled $1,186, up 12% from $1,061 in the same period in 2015. Cash operating cost per ounce for the year
ended December 31, 2016 totaled $941, up 12% from $838 for the same period in 2015. The 14% decrease in ounces sold at the Wassa Main Pit
contributed to the higher cost of sales per ounce and the higher cash operating cost per ounce in 2016.
CAPITAL EXPENDITURES
Capital expenditures for the year ended December 31, 2016 were $41.9 million compared with $33.9 million during the same period in 2015.
Sustaining capital expenditures were $8.2 million for the year ended December 31, 2016 compared to $6.5 million in the same period in 2015.
Development capital expenditures were $33.7 million for the year ended December 31, 2016 compared to $27.4 million in the same period in
2015. Development capital expenditures in 2016 included $23.8 million of expenditures relating to the development of the Wassa Underground
Mine and $9.5 million for the improvement of the tailings storage facility.
24
| GOLDEN STAR RESOURCES BOGOSO/PRESTEA OPERATIONS
Through a 90% owned subsidiary, Golden Star (Bogoso/Prestea) Limited, the Company owns and operates the Bogoso gold mining and
processing operations and the Prestea mining operations located near the town of Prestea, Ghana. Bogoso/Prestea has a CIL processing
facility, which is suitable for treating non-refractory gold ore (the “non-refractory plant”) with capacity of up to 1.5 million tonnes per annum.
Bogoso/Prestea also operated a gold ore processing facility with a capacity of 2.7 million tonnes of ore per annum, which used bio-oxidation
technology to treat refractory ore (the “refractory plant”). The Company suspended the refractory operation at the end of the third quarter
of 2015.
The Prestea mining operations consist of an underground mine, neighbouring open pit, oxide deposits and associated support facilities.
Bogoso/Prestea currently processes the Prestea open pits ore through the non-refractory plant. Ore feed from the open pit operations
commenced in the third quarter of 2015. The Prestea Underground Mine is currently being refurbished and commercial production is
expected to be achieved in mid-2017.
BOGOSO/PRESTEA FINANCIAL RESULTS
Revenue
Mine operating expenses
Severance charges
Royalties
Operating costs to metals inventory
Cost of sales excluding depreciation and amortization
Depreciation and amortization
Mine operating margin/(loss)
Capital expenditures
BOGOSO/PRESTEA OPERATING RESULTS
Ore mined refractory
Ore mined non-refractory
Total ore mined
Waste mined
Refractory ore processed
Refractory ore grade
Gold recovery – refractory ore
Non-refractory ore processed
Non-refractory ore grade
Gold recovery – non-refractory ore
Gold produced – refractory
Gold produced – non-refractory
Gold produced – total
Gold sold – refractory
Gold sold – non-refractory
Gold sold – total
Cost of sales per ounce1
Cash operating cost per ounce1
Three months ended
December 31,
For the years ended
December 31,
2016
2015
2016
2015
$’000 $
28,470 $
22,660 $ 108,949 $ 131,998
$’000
$’000
$’000
$’000
$’000
$’000
17,021
–
1,468
(433)
18,056
1,915
17,591
(231)
1,143
(178)
18,325
2,986
73,046
(184)
5,599
(1,420)
77,041
6,066
128,332
12,810
6,669
(2,157)
145,654
22,817
$’000 $
8,499 $
1,349 $
25,842 $
(36,473)
$’000
13,530
5,725
42,413
23,139
t
t
t
t
t
g/t
%
t
g/t
%
oz
oz
oz
oz
oz
oz
$/oz
$/oz
–
341,246
341,246
614,805
–
–
–
377,580
2.51
83.0
–
24,128
24,128
–
23,893
23,893
836
694
–
301,397
301,397
894,081
–
–
–
317,764
2.36
83.1
1,042
19,704
20,746
1,042
19,456
20,498
1,040
849
–
1,499,656
1,499,656
4,039,768
–
–
–
1,504,139
2.21
83.9
–
89,673
89,673
–
89,517
89,517
928
800
1,230,333
480,583
1,710,916
3,603,153
1,520,541
2.15
67.5
1,409,128
1.32
64.3
76,981
37,169
114,150
76,981
36,921
113,902
1,479
1,108
1
See “Non-GAAP Financial Measures” section for a reconciliation of cost of sales per ounce and cash operating cost per ounce to cost of sales excluding depreciation
and amortization.
25
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Three months ended December 31, 2016 compared to three months ended December 31, 2015
PRODUCTION
Bogoso/Prestea gold production was 24,128 ounces for the fourth quarter of 2016, compared to 20,746 ounces for the same period in 2015
due to higher throughput and higher ore grade processed.
GOLD REVENUES
Gold revenues for the fourth quarter of 2016 were $28.5 million, up 26% from $22.7 million in the fourth quarter of 2015 as a result of a 17%
increase in gold sales and a 8% increase in average realized gold price. The realized gold price averaged $1,192 per ounce in the fourth
quarter of 2016, compared with $1,105 per ounce in the same period in 2015. Gold sold totaled 23,893 ounces in the fourth quarter of 2016,
compared to 20,498 ounces in the same period of 2015.
COST OF SALES EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales excluding depreciation and amortization was $18.1 million for the fourth quarter of 2016, down from $18.3 million for the same
period in 2015, primarily due to a decrease in mine operating expenses. Mine operating expenses totaled $17.0 million in the fourth quarter of
2016, 3% lower than the $17.6 million incurred during the same period in 2015 mainly as a result of lower mining costs due to less material mined.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of $1.9 million for the fourth quarter of 2016 was 37% lower than the $3.0 million for the fourth quarter
of 2015 due to higher reserve and resource estimates at the Bogoso/Prestea operation compared to the same period in 2015.
COSTS PER OUNCE
Cost of sales per ounce for the fourth quarter of 2016 totaled $836, down 20% from $1,040 for the same period in 2015. Cash operating cost per
ounce was $694 for the fourth quarter of 2016, down 18% from $849 for the same period in 2015. The lower cost of sales per ounce and the
lower cash operating cost per ounce were due to an increase in gold sold in the fourth quarter of 2016 compared to the same period in 2015.
CAPITAL EXPENDITURES
Capital expenditures for the fourth quarter of 2016 were $13.5 million compared to $5.7 million incurred during the same period in 2015.
The increase is primarily a result of an increase in development capital expenditures for the Prestea Underground Mine. Development capital
expenditures increased to $10.8 million in the fourth quarter of 2016 compared to $3.4 million in the same period in 2015.
26
| GOLDEN STAR RESOURCES For the year ended December 31, 2016 compared to year ended December 31, 2015
PRODUCTION
Bogoso/Prestea non-refractory gold production was 89,673 ounces for the year ended December 31, 2016, compared to 37,169 ounces for the
same period in 2015 when non-refractory ounces were limited due to the commencement of mining and processing of the non-refractory
Prestea oxide ore in the third quarter of 2015. Refractory gold production, which was suspended in the third quarter, produced 76,981 ounces
of gold in 2015.
GOLD REVENUES
Gold revenues for the year ended December 31, 2016 were $108.9 million compared to $132.0 million for the same period in 2015. Gold sold
totaled 89,517 ounces in the year ended December 31, 2016, down 21% from 113,902 ounces sold in the same period in 2015 as a result of the
suspension of the high cost refractory operation in the third quarter of 2015. This was partially offset by a 5% increase in the realized gold price,
which averaged $1,217 per ounce in the year ended December 31, 2016, compared to $1,159 per ounce in the same period in 2015.
COST OF SALES EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales excluding depreciation and amortization was $77.0 million for the year ended December 31, 2016, down 47% from the $145.7 million
for the same period in 2015, primarily due to a decrease in mine operating expenses and severance charges that were recorded in 2015.
Mine operating expenses totaled $73.0 million for the year ended December 31, 2016, 43% lower than the $128.3 million incurred during the
same period in 2015 due to lower mining and processing costs as a result of the suspension of the high cost refractory operation in 2015.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased to $6.1 million for the year ended December 31, 2016, compared to $22.8 million for the same
period in 2015. The lower depreciation and amortization expense for the year ended December 31, 2016 was due to lower production in 2016
and higher reserve and resource estimates compared to the same period in 2015.
COSTS PER OUNCE
Cost of sales per ounce for 2016 totaled $928, down 37% from $1,479 for the same period in 2015. Cash operating cost per ounce was $800 for
the year ended December 31, 2016, down 28% from $1,108 for the same period in 2015. The lower cost of sales per ounce and the lower cash
operating cost per ounce in 2016 were due to the change in cost profile as a result of mining oxide, non-refractory ore at Prestea compared to
refractory ore mined at Bogoso during 2015. Mining and processing costs in 2016 were attributable to the lower cost non-refractory operation
whereas 68% of gold sold in 2015 was attributable to the higher cost, higher power consuming refractory operation.
CAPITAL EXPENDITURES
Capital expenditures for the year ended December 31, 2016 were $42.4 million compared to $23.1 million during the same period in 2015.
The increase relates primarily to an increase in development capital expenditures, which totaled $36.8 million in 2016 compared to $19.8 million
in 2015. Development capital expenditures in 2016 were mostly attributable to the Prestea Underground Mine.
27
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
SUMMARIZED QUARTERLY FINANCIAL RESULTS
Three months ended,
(Stated in thousands of U.S.
dollars except per share data)
Revenues
Cost of sales excluding
depreciation and amortization
Net income/(loss)
Net income/(loss) attributable
to shareholders of Golden Star
Adjusted net income/(loss)
attributable to Golden Star
shareholders1
Income/(loss) per share
attributable to Golden Star
shareholders – basic and
diluted
Adjusted income/(loss) per
share attributable to Golden
Star shareholders – basic1
Q4 2016
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
Q2 2015
Q1 2015
$ 53,255
$ 55,511
$ 51,457
$ 61,067
$ 56,420 $ 56,452
$ 65,796 $ 76,519
43,994
2,551
44,608
(23,792)
42,956
(22,836)
41,058
2,314
39,354
14,217
55,199
(8,526)
78,738
(68,988)
72,203
(15,113)
3,446
(23,110)
(22,034)
2,051
13,781
(6,832)
(61,503)
(13,127)
64
1,148
1,433
8,538
7,003
(11,205)
(15,727)
(8,426)
$
0.01
$
(0.07)
$
(0.08)
$
0.01
$
0.05
$
(0.03)
$
(0.24)
$
(0.05)
$
0.01
$
0.01
$
0.01
$
0.03
$
0.03
$
(0.04)
$
(0.07)
$
(0.03)
1
See “Non-GAAP Financial Measures” section for a reconciliation of adjusted net income/(loss) attributable to Golden Star shareholders and adjusted income/(loss)
per share attributable to Golden Star shareholders to net income/(loss) attributable to Golden Star shareholders and income/(loss) per share attributable to
Golden Star shareholders.
SELECTED ANNUAL INFORMATION
(Stated in thousands of U.S. dollars except per share data)
Cash and cash equivalents
Working capital1
Total assets
Long-term financial liabilities
Deficit
As of December 31,
2016
2015
$
21,764 $
(60,459)
298,850
89,445
(120,761)
35,108 $
(65,750)
238,982
91,899
(131,234)
For the years ended December 31,
(Stated in thousands of U.S. dollars except per share data)
2016
2015
Revenue
Net loss attributable to Golden Star
Loss per share attributable to Golden Star shareholders – basic and diluted
$
221,290 $
(39,647)
(0.13)
255,187 $
(67,681)
(0.26)
1 Working Capital is calculated as Current Assets minus Current Liabilities as disclosed on the Consolidated Balance Sheet.
2014
39,352
(31,964)
258,053
85,798
(54,193)
2014
328,915
(73,079)
(0.28)
USE OF PROCEEDS FROM FINANCING
During the year ended December 31, 2016, the Company received total net cash proceeds of $66.2 million from three financings during
the year:
• $13.7 million of net proceeds from the bought deal public offering of 22.75 million common shares which closed on May 9, 2016;
• $31.8 million of net proceeds from the underwritten public offering of 46 million shares which closed on August 3, 2016; and
•
$20.7 million of net proceeds from the private placement of $65 million aggregate principal amount of 7% Convertible Debentures which
closed on August 3, 2016 (the Company exchanged $42 million principal amount of its outstanding 5% Convertible Debentures for an equal
principal amount of its 7% Convertible Debentures and therefore did not receive any cash proceeds pursuant to such exchange).
28
| GOLDEN STAR RESOURCES The following table compares how the Company intended to use the net proceeds from these financings at the time of the respective offerings
against the actual use of these funds:
Intended use
Actual use
$13.7 million net proceeds from the May 9, 2016 bought deal public offering:
$12.0 million to fund the reduction of certain company debt and
remaining amount for working capital and general corporate
purposes.
$12.0 million was used to fund the reduction of certain company debt
and $1.7 million was used for working capital and general corporate
purposes.
$31.8 million net proceeds from the underwritten public offering and $20.7 million of net proceeds from the private placement of
$65 million principal of 7% Convertible Debentures which both closed on August 3, 2016:
Retire certain outstanding indebtedness including the 5% Convertible
Debentures and the Ecobank Loan II and for general corporate
purposes.
$22.4 million was used to fully repay the Ecobank Loan II; $18.2 million
was used to retire a portion of the outstanding 5% Convertible
Debentures; and $11.9 million for general corporate purposes, a
portion of which will be used to partially settle the remaining 5%
Convertible Debentures which mature on June 1, 2017.
Accordingly, the actual use of proceeds of the above-referenced offerings was consistent with the intended use at the time of each offering.
LIQUIDITY AND FINANCIAL CONDITION
The Company held $21.8 million in cash and cash equivalents as of December 31, 2016, down from $35.1 million at December 31, 2015.
The Company received an additional $10.0 million scheduled advance payment from RGLD on January 3, 2017. The Company also received
gross proceeds of CAD $34.5 million on February 7, 2017 from a completed bought deal public offering. During the year ended December 31,
2016, operations provided $53.2 million, investing activities used $86.5 million and financing activities provided $19.9 million of cash.
Before working capital changes, operations provided $75.5 million of operating cash flow during the year ended December 31, 2016, compared
to $53.4 million in the same period in 2015. Advance payments of $60.0 million were received from RGLD pursuant to the Streaming Agreement
during 2016 compared to $75.0 million in 2015. Cash provided by operations before working capital changes increased primarily due to a
higher mine operating margin during the year ended December 31, 2016 compared to the same period in 2015, offset by a $15.0 million
decrease in advance payment from RGLD.
Working capital used $22.2 million during the year ended December 31, 2016, compared to $6.7 million provided by working capital in the same
period in 2015. The working capital changes in 2016 related to a $11.7 million decrease in accounts payable and accrued liabilities, a $9.4 million
increase in inventory, a $2.2 million increase in accounts receivable, offset by a $1.1 million decrease in prepaid and other. The reduction of
accounts payable and accrued liabilities included a payment of $12.0 million to a vendor pursuant to an agreement reached in the second
quarter of 2016. There is $24.5 million in payables remaining with this vendor which is payable in 24 equal monthly installments starting in
January 2018 which has been reclassified as long-term debt.
Investing activities used $86.5 million during 2016, which included $36.8 million on the development of the Prestea Underground Mine,
$23.8 million on the development of the Wassa Underground Mine, $9.5 million on the expansion of the tailings storage facility at Wassa,
$6.8 million in equipment upgrades at Wassa and $5.1 million on the Prestea open pit mines.
Financing activities provided $19.9 million cash in 2016 compared to $7.9 million used in 2015. Financing activities for the year ended
December 31, 2016 included net proceeds of $13.7 million from the bought deal public offering in May 2016, net proceeds of $31.8 million from
the equity offering in August 2016 and net proceeds of $20.7 million from the private offering of the 7% Convertible Debentures. Cash flow used
for financing activities included $19.9 million repurchase of the 5% Convertible Debentures and net $27.3 million net repayment of debt which
included the repayment of the Ecobank Loan II in full.
29
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
LIQUIDITY OUTLOOK
As December 31, 2016, the Company had a working capital deficit of $60.5 million. In addition, the Company’s debt repayment and servicing
obligation for 2017 are expected to total approximately $23.7 million. As at December 31, 2016, the Company had a cash balance of $21.8 million
and on January 3, 2017, the Company received a scheduled $10.0 million payment from RGLD pursuant to the Streaming Agreement. The
Company also received gross proceeds of CAD $34.5 million under the completed bought deal public offering on February 7, 2017.
In addition to cash operating costs, the Company pays a 5% royalty to the Government of Ghana, reclamation expenditures and corporate
general and administration expenditures.
The Company expects to incur $58.4 million on capital expenditures during 2017, of which approximately $38.1 million is development capital
expenditure and approximately $20.3 million is sustaining capital expenditure. If gold prices fall significantly from current levels, the Company
could defer discretionary capital spending of up to approximately $22 million to meet its obligations.
The Company has $13.6 million principal amount of the 5% Convertible Debentures due on June 1, 2017. On maturity, the Company may, at its
option, satisfy the repayment obligation by paying the principal amount of the 5% Convertible Debentures in cash or, subject to certain
limitations, by issuing that number of the Company’s common shares (see Note 12 of the Audited Consolidated Financial Statements for the
year ended December 31, 2016).
The Company intends to settle the remaining balance of $13.6 million of its 5% Convertible Debentures in cash. However, the Company may
decide to settle the balance in shares or a combination of shares and cash depending on expected gold price, the Company’s cash balance
prior to maturity, the Company’s share price prior to maturity and the expected future cash flow generated by operations.
Based on the Company’s cash balance together with the operating cash flow that the Company anticipates generating in 2017 based on the
Company’s expected production range of approximately 255,000 ounces to 280,000 ounces of gold at an expected all-in sustaining cost of
$970 per ounce to $1,070 per ounce in 2017 (see “Outlook for 2017” section in this MD&A), the Company believes that it will have sufficient cash
available to support its 2017 operations and mandatory expenditures. However, operating cash flow may decline in certain circumstances,
most of which are beyond the Company’s control, such as decreases in gold prices or increases in the cost of raw materials and inputs used by
the Company to produce gold. Accordingly, the Company may continue to incur negative operating cash flow. The Company may need to
deploy a portion of its working capital to fund such negative operating cash flows or seek additional sources of funding.
30
| GOLDEN STAR RESOURCES TABLE OF CONTRACTUAL OBLIGATIONS
(Stated in thousands of U.S. dollars)
Accounts payable and accrued liabilities
Debt1
Interest on long term debt
Purchase obligations
Rehabilitation provisions2
Payment due by period
Less than
1 year
1 to 3 years
4 to 5 years
More than
5 years
$
$
94,973 $
15,695
8,014
14,570
5,515
–
45,526
12,719
–
19,489
$
–
59,999
8,400
–
24,321
–
–
–
–
35,048
$
Total
94,973
121,220
29,133
14,570
84,373
TOTAL
$ 138,767 $ 77,734 $ 92,720 $ 35,048 $ 344,269
1
2
Includes the outstanding repayment amounts from the 5% Convertible Debentures maturing on June 1, 2017, the 7% Convertible Debentures maturing on August 15, 2021,
the loan from Royal Gold, the finance leases and the vendor agreement.
Rehabilitation provisions indicates the expected undiscounted cash flows for each period.
RELATED PARTY TRANSACTIONS
There were no material related party transactions in the year ended December 31, 2016 and 2015 other than compensation of key management
personnel which is presented in the table below. Key management personnel are defined as members of the Board of Directors and certain
senior officers. Compensation of key management personnel are made on terms equivalent to those prevailing in an arm’s length transaction.
Salaries, wages, and other benefits
Bonuses
Share-based compensation
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material off-balance sheet arrangements.
For the years ended
December 31,
2016
2,337 $
1,311
9,736
2015
2,438
983
593
$
$ 13,384 $
4,014
31
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
NON-GAAP FINANCIAL MEASURES
In this MD&A, we use the terms “cash operating cost”, “cash operating cost per ounce”, “all-in sustaining costs”, “all-in sustaining costs per
ounce”, “adjusted net income/(loss) attributable to Golden Star shareholders”, “adjusted income/(loss) per share attributable to Golden Star
shareholders” and “cash provided by operations before working capital changes”.
“Cost of sales excluding depreciation and amortization” as found in the statements of operations includes all mine-site operating costs,
including the costs of mining, ore processing, maintenance, work-in-process inventory changes, mine-site overhead as well as production
taxes, royalties, and by-product credits, but excludes exploration costs, property holding costs, corporate office general and administrative
expenses, foreign currency gains and losses, gains and losses on asset sales, interest expense, gains and losses on derivatives, gains and
losses on investments and income tax expense/benefit.
“Cash operating cost” for a period is equal to “Cost of sales excluding depreciation and amortization” for the period less royalties, the cash
component of metals inventory net realizable value adjustments and severance charges, and “cash operating cost per ounce” is that amount
divided by the number of ounces of gold sold (excluding pre-commercial production ounces sold) during the period. We use cash operating
cost per ounce as a key operating metric. We monitor this measure monthly, comparing each month’s values to prior periods’ values to detect
trends that may indicate increases or decreases in operating efficiencies. We provide this measure to investors to allow them to also monitor
operational efficiencies of the Company’s mines. We calculate this measure for both individual operating units and on a consolidated basis.
Since cash operating costs 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 IFRS. Changes in numerous factors including, but not limited
to, mining rates, milling rates, ore 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 similar to the measures of other gold mining companies,
but may not be comparable to similarly titled measures in every instance.
“All-in sustaining costs” commences with cash operating costs and then adds metals net realizable value adjustment, royalties, sustaining
capital expenditures, corporate general and administrative costs (excluding non-cash share-based compensation expenses), and accretion
of rehabilitation provision. “All-in sustaining costs per ounce” is that amount divided by the number of ounces of gold sold (excluding pre-
commercial production ounces sold) during the period. This measure seeks to represent the total costs of producing gold from current
operations, and therefore it does not include capital expenditures attributable to projects or mine expansions, exploration and evaluation
costs attributable to growth projects, income tax payments, interest costs or dividend payments. Consequently, this measure is not
representative of all of the Company’s cash expenditures. In addition, the calculation of all-in sustaining costs does not include depreciation
expense as it does not reflect the impact of expenditures incurred in prior periods. Therefore, it is not indicative of the Company’s overall
profitability. Non-cash share-based compensation expenses are now also excluded from the calculation of all-in sustaining costs as the
Company believes that such expenses may not be representative of the actual payout on equity and liability based awards. Non-cash
share-based compensation expenses were previously included in the calculation of all-in sustaining costs. The Company has presented
comparative figures to conform with the computation of all-in sustaining costs as currently calculated by the Company.
The Company believes that “all-in sustaining costs” will better meet the needs of analysts, investors and other stakeholders of the Company in
understanding the costs associated with producing gold, understanding the economics of gold mining, assessing the operating performance
and also the Company’s ability to generate free cash flow from current operations and to generate free cash flow on an overall Company
basis. Due to the capital intensive nature of the industry and the long useful lives over which these items are depreciated, there can be a
disconnect between net earnings calculated in accordance with IFRS and the amount of free cash flow that is being generated by a mine.
In the current market environment for gold mining equities, many investors and analysts are more focused on the ability of gold mining
companies to generate free cash flow from current operations, and consequently the Company believes these measures are useful non-IFRS
operating metrics (“non-GAAP measures”) and supplement the IFRS disclosures made by the Company. These measures are not representative
of all of Golden Star’s cash expenditures as they do not include income tax payments or interest costs. Non-GAAP measures are intended to
provide additional information only and do not have standardized definitions under IFRS and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit
or cash flow from operations as determined under IFRS. The table below reconciles these non-GAAP measures to the most directly comparable
IFRS measures and, where applicable, previous periods have been recalculated to conform to the current definition.
32
| GOLDEN STAR RESOURCES The table below reconciles consolidated cost of sales excluding depreciation and amortization to cost of sales per ounce, cash operating cost
per ounce and all-in sustaining costs per ounce:
(Stated in thousands of U.S. dollars except cost per ounce data)
2016
2015
2016
2015
Cost of sales excluding depreciation and amortization
Depreciation and amortization
$
43,994 $
6,117
39,354 $ 172,616 $ 245,494
37,339
21,160
7,054
COST OF SALES
$ 50,111 $ 46,408 $ 193,776 $ 282,833
Three months ended
December 31,
For the years ended
December 31,
Cost of sales excluding depreciation and amortization
Severance charges
Royalties
Metals inventory net realizable value adjustment
$
43,994 $
–
(3,238)
(1,190)
39,354 $ 172,616 $ 245,494
(14,626)
(12,903)
(1,524)
71
(12,082)
(1,190)
231
(2,871)
–
CASH OPERATING COSTS
39,566
36,714
159,415
216,441
Royalties
Metals inventory net realizable value adjustment
Accretion of rehabilitation provision
General and administrative costs, excluding share-based compensation
Sustaining capital expenditures
3,238
1,190
342
2,833
6,664
2,871
–
440
2,346
3,488
12,082
1,190
1,368
11,904
13,779
12,903
1,524
1,761
12,276
9,801
ALL-IN SUSTAINING COSTS
Ounces sold1
COST PER OUNCE MEASURES ($/OZ):
Cost of sales per ounce
Cash operating cost per ounce
All-in sustaining cost per ounce
$ 53,833 $ 45,859 $ 199,738 $ 254,706
44,969
51,378
182,801
221,653
1,114
880
1,197
903
715
893
1,060
872
1,093
1,276
976
1,149
The tables below reconciles cost of sales excluding depreciation and amortization to cash operating costs per ounce for each of the
operating mines:
(Stated in thousands of U.S. dollars except cost per ounce data)
Cost of sales excluding depreciation and amortization
Depreciation and amortization
COST OF SALES
Cost of sales excluding depreciation and amortization
Royalties
Metals inventory net realizable value adjustment
CASH OPERATING COSTS
Ounces sold1
Cost of sales per ounce
Cash operating cost per ounce
Three months ended December 31, 2016
Wassa
Bogoso/
Prestea
Combined
$
25,938 $
4,202
18,056 $
1,915
43,994
6,117
$ 30,140 $ 19,971 $ 50,111
$
25,938 $
(1,770)
(1,190)
18,056 $
(1,468)
–
43,994
(3,238)
(1,190)
$ 22,978 $ 16,588 $ 39,566
21,076
1,430 $
1,090 $
$
$
23,893
836 $
694 $
44,969
1,114
880
1
For the calculation of cost of sales per ounce, cash operating cost per ounce and all-in sustaining cost per ounce, Wassa ounces sold only include those attributable
to the Wassa Main Pit. The ounces mined from the Wassa Underground are excluded as Wassa Underground was not in commercial production for the year ended
December 31, 2016. As such, Wassa Underground expenditures are capitalized net of revenues.
33
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(Stated in thousands of U.S. dollars except cost per ounce data)
Cost of sales excluding depreciation and amortization
Depreciation and amortization
COST OF SALES
Cost of sales excluding depreciation and amortization
Severance charges
Royalties
Metals inventory net realizable value adjustment
CASH OPERATING COSTS
Ounces sold1
Cost of sales per ounce
Cash operating cost per ounce
(Stated in thousands of U.S. dollars except cost per ounce data)
Cost of sales excluding depreciation and amortization
Depreciation and amortization
COST OF SALES
Cost of sales excluding depreciation and amortization
Severance charges
Royalties
CASH OPERATING COSTS
Ounces sold1
Cost of sales per ounce
Cash operating cost per ounce
For the years ended December 31, 2016
Wassa
Bogoso/
Prestea
Combined
$
95,575 $
15,094
77,041 $ 172,616
21,160
6,066
$ 110,669 $ 83,107 $ 193,776
$
95,575 $
(113)
(6,483)
(1,190)
77,041 $ 172,616
71
(12,082)
(1,190)
184
(5,599)
–
$ 87,789 $ 71,626 $ 159,415
93,284
1,186 $
941 $
$
$
89,517
928 $
800 $
182,801
1,060
872
Three months ended December 31, 2015
Wassa
Bogoso/
Prestea
Combined
$
21,029 $
4,068
18,325 $
2,986
39,354
7,054
$ 25,097 $ 21,311 $ 46,408
$
21,029 $
–
(1,728)
18,325 $
231
(1,143)
39,354
231
(2,871)
$ 19,301 $ 17,413 $ 36,714
30,880
$
$
813 $
625 $
20,498
1,040 $
849 $
51,378
903
715
1
For the calculation of cost of sales per ounce, cash operating cost per ounce and all-in sustaining cost per ounce, Wassa ounces sold only include those attributable
to the Wassa Main Pit. The ounces mined from the Wassa Underground are excluded as Wassa Underground was not in commercial production for the year ended
December 31, 2016. As such, Wassa Underground expenditures are capitalized net of revenues.
34
| GOLDEN STAR RESOURCES (Stated in thousands of U.S. dollars except cost per ounce data)
Cost of sales excluding depreciation and amortization
Depreciation and amortization
COST OF SALES
Cost of sales excluding depreciation and amortization
Severance charges
Royalties
Metals inventory net realizable value adjustment
CASH OPERATING COSTS
Ounces sold1
Cost of sales per ounce
Cash operating cost per ounce
For the years ended December 31, 2015
Wassa
Bogoso/
Prestea
Combined
$
99,840 $
14,522
145,654 $ 245,494
37,339
22,817
$
114,362
$
168,471
$ 282,833
$
99,840 $
(1,816)
(6,234)
(1,524)
145,654 $ 245,494
(14,626)
(12,810)
(12,903)
(6,669)
(1,524)
–
$ 90,266 $
126,175 $ 216,441
107,751
1,061
$
838 $
113,902
1,479 $
1,108 $
221,653
1,276
976
$
$
1
For the calculation of cost of sales per ounce, cash operating cost per ounce and all-in sustaining cost per ounce, Wassa ounces sold only include those attributable
to the Wassa Main Pit. The ounces mined from the Wassa Underground are excluded as Wassa Underground was not in commercial production for the year-ended
December 31, 2016. As such, Wassa Underground expenditures are capitalized net of revenues.
Cash provided by operations before working capital changes” is calculated by subtracting the “Changes in working capital” from “Net cash
provided by operating activities” as found in the statements of cash flows.
We use cash operating cost per ounce and cash (used in)/provided by operations before working capital changes as key operating metrics.
We monitor these measures monthly, comparing each month’s values to prior periods’ values to detect trends that may indicate increases
or decreases in operating efficiencies. These measures are also compared against budget to alert management of trends that may cause
actual results to deviate from planned operational results. We provide these measures to investors to allow them to also monitor operational
efficiencies of the mines owned by the Company. We calculate these measures for both individual operating units and on a consolidated basis.
Cash operating cost per ounce and cash provided by operations before working capital changes should be considered as non-GAAP financial
measures as defined in the Canadian securities laws and should not be considered in isolation or as a substitute for measures of performance
prepared in accordance with IFRS. 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 IFRS. Changes in numerous factors including, but not limited to, mining rates, milling rates,
ore 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 similar to the measures of other gold mining companies, but may not be
comparable to similarly titled measures in every instance.
Beginning in this reporting period, the Company began reporting cost of sales per ounce in addition to the previously disclosed cash operating
cost per ounce. It is the Company’s belief that this new metric are important for a comprehensive disclosure of the financial and operational
results of the Company as this metric is now used by certain peer companies in the gold mining industry.
35
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Adjusted net income/(loss) attributable to Golden Star shareholders
The table below shows the reconciliation of net income/(loss) attributable to Golden Star shareholders to adjusted net income/(loss)
attributable to Golden Star shareholders and adjusted income/(loss) per share attributable to Golden Star shareholders:
(Stated in thousands of U.S. dollars except per share data)
2016
2015
2016
2015
Net income/(loss) attributable to Golden Star shareholders
$
3,446 $
13,781 $
(39,647)
$
(67,681)
Three months ended
December 31,
For the years ended
December 31,
Add back:
Share-based compensation expenses
Loss/(gain) on fair value of financial instruments
Loss on repurchase of 5% Convertible Debentures, net
Severance charges
Gain on reduction of asset retirement obligations
Impairment charges
Adjustments attributable to non-controlling interest
(2,316)
(888)
–
–
(198)
–
44
20
175
(1,658)
–
(231)
(5,652)
–
6,415
588
13,850
25,628
11,594
(71)
(198)
–
11,156
27
2,005
(1,712)
–
14,626
(5,652)
34,396
(24,018)
(4,337)
Adjusted net income/(loss) attributable to Golden Star shareholders
$
64 $
7,003 $ 11,183 $ (28,355)
Adjusted income/(loss) per share attributable to
Golden Star shareholders – basic
Weighted average shares outstanding – basic (millions)
$
0.01 $
331.0
0.03 $
259.7
0.04 $
294.1
(0.11)
259.7
In order to indicate to stakeholders the Company’s earnings excluding the non-cash loss/(gain) on fair value of financial instruments,
non-cash loss on repurchase of the 5% Convertible Debentures, non-cash impairment charges, non-cash gain on reduction of asset retirement
obligations, non-cash share-based compensation expenses, and severance charges, the Company calculates “adjusted net income/(loss)
attributable to Golden Star shareholders” and “adjusted income/(loss) per share attributable to Golden Star shareholders” to supplement the
audited consolidated financial statements. The adjusted income/(loss) per share attributable to Golden Star shareholders is calculated using
the weighted average number of shares outstanding using the basic method of earnings per share.
Adjusted net income/(loss) attributable to Golden Star shareholders and adjusted income/(loss) per share attributable to Golden Star
shareholders should be considered as non-GAAP financial measures as defined in the 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 all non-cash expense and income items, 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
IFRS. Changes in numerous factors including, but not limited to, our share price, risk free interest rates, gold prices, mining rates, milling rates,
ore grade, gold recovery, costs of labor, consumables and mine site general and administrative activities can cause these measures to
increase or decrease. The Company believes that these measures are similar to the measures of other gold mining companies, but may
not be comparable to similarly titled measures in every instance.
OUTSTANDING SHARE DATA
As of February 21, 2017, there were 374,499,286 common shares of the Company issued and outstanding, 15,572,606 stock options
outstanding, 5,842,224 deferred share units outstanding, 5,000,000 warrants outstanding, 5% Convertible Debentures which are
convertible into an aggregate of 8,249,091 common shares and 7% Convertible Debentures which are convertible into an aggregate
of 58,886,667 common shares.
36
| GOLDEN STAR RESOURCES CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The critical accounting estimates and assumptions are disclosed in Note 4 of the audited consolidated financial statements for the year
ended December 31, 2016.
CHANGES IN ACCOUNTING POLICIES
The changes in accounting policies and standards, interpretations and amendments not yet effective are disclosed in Note 3 of the audited
consolidated financial statements for the year ended December 31, 2016.
FINANCIAL INSTRUMENTS
(Stated in thousands of U.S. dollars)
Cash and cash equivalents
Accounts receivable
Trade and other payables
Warrants
Equipment financing facility
Finance leases
5% Convertible Debentures
7% Convertible Debentures
Royal Gold loan, net of fees
Vendor agreement
Long term derivative liability
Fair value at
December 31,
2016
$
21,764
7,299
86,662
2,729
1,119
1,959
13,294
47,617
18,496
22,338
15,127
Basis of measurement
Associated risks
Loans and receivables
Loans and receivables
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Interest/Credit/Foreign exchange
Foreign exchange/Credit
Foreign exchange/Interest
Market price
Interest
Interest
Interest
Interest
Interest
Interest/Foreign exchange
Market price
Loans and receivables – Cash and cash equivalents and accounts receivables mature in the short term and approximate their fair values.
Amortized costs – Trade and other payables, the 7% Convertible Debentures, the Royal Gold loan, the vendor agreement, the equipment
financing facility and the finance leases approximate their carrying values as the interest rates are comparable to current market rates.
Carrying value of the vendor agreement has been discounted to reflect its fair value.
Fair value through profit or loss
Warrants – The fair value of the warrants is estimated using a Black-Scholes model. For the three and twelve months ended December 31, 2016,
a revaluation gain of $0.5 million and a revaluation loss of $2.3 million were recorded respectively.
5% Convertible Debentures – The debt component of the 5% Convertible Debentures is valued based on discounted cash flows and the
conversion feature is valued using a Black-Scholes model. The risk-free interest rate used in the fair value computation is the interest rate on
the US treasury rate with maturity similar to the remaining life of the 5% Convertible Debentures. The discount rate used is determined by
adding the risk premium to the risk-free interest rate. A market-based volatility rate was also applied to the fair value computation. For the
three and twelve months ended months ended December 31, 2016, revaluation losses of $0.1 million and $17.2 million were recorded respectively.
Realized loss on repurchase of $Nil and $11.6 million were recognized respectively for the three and twelve months ended December 31, 2016.
Long term derivative liability – The fair value of the derivative liability relating to the 7% Convertible Debentures is estimated using a convertible
note valuation model. For the three and twelve months ended December 31, 2016, revaluation loss of $0.5 million and $3.8 million were recorded.
Gain on conversions of $Nil and $0.9 million were recognized respectively for the three and twelve months ended December 31, 2016.
37
ANNUAL REPORT 2016 | MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
DISCLOSURES ABOUT RISKS
The Company’s exposure to significant risks include, but are not limited to, the following risks: change in interest rates on our debt, change
in foreign currency exchange rates, commodity price fluctuations, liquidity risk and credit risk. In recognition of the Company’s outstanding
accounts payable, the Company cannot guarantee that vendors or suppliers will not suspend or deny delivery of products or services to the
Company. For a complete discussion of the risks, refer to the discussion in Notes 26 and 27 of the audited consolidated financial statements
for the year ended December 31, 2016.
CONTROLS AND PROCEDURES
Disclosure controls and procedures
the Company’s management, with the participation of its President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that
evaluation, the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have concluded
that, as of December 31, 2016, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the
appropriate time periods and is accumulated and communicated to management, including the President and Chief Executive Officer
and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s report on internal control over financial reporting
the Company’s management, with the participation of its President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, are responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision
of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the 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 IFRS. The Company’s internal control over financial reporting includes policies
and procedures that:
•
•
•
pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, the transactions and dispositions of assets of
the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS and that the Company’s receipts and expenditures are made only in accordance with authorizations of management and the
Company’s directors; and
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 Company’s consolidated financial statements.
The Company’s management, including the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer,
believes that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within
the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any control system also is
base in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control
system, misstatements due to error or fraud may occur and not be detected.
38
| GOLDEN STAR RESOURCES The Company’s management, under the supervision of the President and Chief Executive Officer and the Executive Vice President and Chief
Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting. In making this assessment, it used the
criteria set forth in the Internal Control – integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013). Based on our assessment, management has concluded that, as at December 31, 2016, the Company’s internal control
over financial reporting is effective based on those criteria.
The Company’s internal control over financial reporting as at December 31, 2016 has been audited by PricewaterhouseCoopers (“PWC”)
Chartered Professional Accountants, Licensed Public Accountants who also audited the Company’s Consolidated Financial Statements for
the year ended December 31, 2016. PwC as stated in their report that immediately precedes the Company’s audited consolidated financial
statements for the year ended December 31, 2016, expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
Changes in internal control over financial reporting
there has been no change in the Company’s design of internal controls and procedures over financial reporting that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control over financial reporting during the period covered by this MD&A.
RISK FACTORS AND ADDITIONAL INFORMATION
The risk factors for the year ended December 31, 2016, are substantially the same as those disclosed and discussed under the headings “Risk
Factors – Risks Relating to the Company’s Business and its Industry” and “Risk Factors – Governmental and Regulatory Risks” in our short form
prospectus dated January 31, 2017. Additional and/or updated risk factors, if applicable, will be included in our annual information form for the
year ended December 31, 2016, which will be filed on SEDAR at www.sedar.com.
39
ANNUAL REPORT 2016 | FINANCIAL STATEMENTS
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Golden Star Resources Ltd. (the “Company”) and all information in this financial
report are the responsibility of management. The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards and, where appropriate, include management’s best estimates and judgments.
Management maintains a system of internal control designed to provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, and that financial information is timely and reliable. However, any system of internal control over financial reporting, no
matter how well designed and implemented, has inherent limitations and may not prevent or detect all misstatements.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the consolidated financial statements.
The Board carries out this responsibility principally through its Audit Committee. The Board of Directors appoints the Audit Committee, and all
of its members are independent directors. The Audit Committee meets periodically with management and the auditors to review internal
controls, audit results, accounting principles and related matters. The Board of Directors approves the consolidated financial statements on
recommendation from the Audit Committee.
PricewaterhouseCoopers LLP, an independent firm of Chartered Professional Accountants, was appointed by the shareholders at the last annual
meeting to examine the consolidated financial statements and provide an independent professional opinion. PricewaterhouseCoopers LLP
has full and free access to the Audit Committee.
“Samuel T. Coetzer”
Samuel T. Coetzer
President and Chief Executive Officer
Toronto, Canada
February 21, 2017
“André van Niekerk”
André van Niekerk
Executive Vice President and Chief Financial Officer
40
| GOLDEN STAR RESOURCES
INDEPENDENT AUDITOR’S REPORT
February 21, 2017
TO THE SHAREHOLDERS OF GOLDEN STAR RESOURCES LTD.
We have completed integrated audits of Golden Star Resources Ltd.’s (the company) 2016 and 2015 consolidated financial statements and its
internal control over financial reporting as at December 31, 2016. Our opinions, based on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of the company, which comprise the consolidated balance sheets as
at December 31, 2016 and December 31, 2015 and the consolidated statements of operations and comprehensive loss, cash flows, and changes
in shareholders’ equity for the years then ended, and the related notes, which comprise a summary of significant accounting policies and
other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and for such internal
control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with
ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the
consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the company as at
December 31, 2016 and December 31, 2015 and its financial performance and its cash flows for the years then ended in accordance with IFRS as
issued by the IASB.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, ON, Canada M5J 0B2
T: +1 416 863 1133, F:+1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
41
ANNUAL REPORT 2016 | INDEPENDENT AUDITOR’S REPORT – continued
Report on internal control over financial reporting
We have also audited the company’s internal control over financial reporting as at December 31, 2016, based on criteria established in Internal
Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s responsibility for internal control over financial reporting
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 the accompanying Management’s Annual Report on Internal Control over Financial
Reporting.
Auditor’s responsibility
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 audit opinion on the company’s internal control over financial reporting.
Definition of internal control over financial reporting
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.
Inherent limitations
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.
Opinion
In our opinion, the company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2016,
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Chartered Professional Accountants, Licensed Public Accountants
42
| GOLDEN STAR RESOURCES
TABLE OF CONTENTS
FINANCIAL STATEMENTS
Consolidated statements of operations and comprehensive loss
Consolidated balance sheets
Consolidated statements of cash flows
Consolidated statements of changes in shareholders' equity
Share capital
NOTES TO THE FINANCIAL STATEMENTS
Nature of operations
1.
Basis of presentation
2.
Summary of accounting policies
3.
Critical accounting judgements, estimates and assumptions
4.
Financial instruments
5.
Inventories
6.
Mining interests
7.
Income taxes
8.
Accounts payable and accrued liabilities
9.
10. Rehabilitation provisions
11. Deferred revenue
12. Debt
13.
14. Commitments and contingencies
Share-based compensation
15.
16.
Loss per common share
17. Revenue
18. Cost of sales excluding depreciation and amortization
19.
20. Other income
21. Related party transactions
22.
Principal subsidiaries
23. Operations by segment and geographic area
Supplemental cash flow information
24.
Impairment charges
25.
Financial risk management
26.
27. Capital risk management
Subsequent events
28.
Finance expense, net
44
45
46
47
48
48
48
54
57
59
60
61
63
63
64
65
70
70
71
75
75
76
76
77
77
78
79
80
80
81
83
84
43
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
REVENUE
Cost of sales excluding depreciation and amortization
Depreciation and amortization
MINE OPERATING MARGIN/(LOSS)
OTHER EXPENSES/(INCOME)
Exploration expense
General and administrative
Finance expense, net
Other income
Loss/(gain) on fair value of financial instruments, net
Loss on repurchase of 5% Convertible Debentures, net
Impairment charges
NET LOSS AND COMPREHENSIVE LOSS
Net loss attributable to non-controlling interest
NET LOSS ATTRIBUTABLE TO GOLDEN STAR SHAREHOLDERS
NET LOSS PER SHARE ATTRIBUTABLE TO GOLDEN STAR SHAREHOLDERS
Basic and diluted
Weighted average shares outstanding-basic and diluted (millions)
(Stated in thousands of U.S. dollars except shares and per share data)
The accompanying notes are an integral part of the consolidated financial statements.
For the years ended December 31,
NOTES
2016
2015
17
18
19
20
5
5
25
$ 221,290
172,616
21,160
27,514
1,818
25,754
7,832
(3,349)
25,628
11,594
—
$ 255,187
245,494
37,339
(27,646)
1,307
14,281
10,670
(8,178)
(1,712)
—
34,396
$
(41,763)
(2,116)
$
(78,410)
(10,729)
$
(39,647)
$
(67,681)
16
$
(0.13)
294.1
$
(0.26)
259.7
44
| GOLDEN STAR RESOURCES
GOLDEN STAR RESOURCES LTD
CONSOLIDATED BALANCE SHEETS
As of December 31,
NOTES
2016
2015
6
7
$
$
21,764
7,299
44,381
3,926
77,370
6,463
215,017
35,108
5,114
36,694
5,754
82,670
6,463
149,849
$ 298,850
$ 238,982
$
9
5
10
11
12
$
94,973
2,729
5,515
19,234
15,378
10
11
12
5
15
13
137,829
71,867
94,878
89,445
15,127
10,465
419,611
—
746,542
33,861
(832,951)
(52,548)
(68,213)
110,811
407
3,660
11,507
22,035
148,420
76,025
53,872
91,899
—
—
370,216
—
695,555
32,612
(793,304)
(65,137)
(66,097)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable
Inventories
Prepaids and other
TOTAL CURRENT ASSETS
RESTRICTED CASH
MINING INTERESTS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Derivative liabilities
Current portion of rehabilitation provisions
Current portion of deferred revenue
Current portion of long term debt
TOTAL CURRENT LIABILITIES
REHABILITATION PROVISIONS
DEFERRED REVENUE
LONG TERM DEBT
LONG TERM DERIVATIVE LIABILITY
OTHER LONG TERM LIABILITY
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
SHARE CAPITAL
First preferred shares, without par value, unlimited shares authorized
No shares issued and outstanding
Common shares, without par value, unlimited shares authorized
CONTRIBUTED SURPLUS
DEFICIT
DEFICIT ATTRIBUTABLE TO GOLDEN STAR
NON-CONTROLLING INTEREST
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 298,850
$ 238,982
(Stated in thousands of U.S. dollars)
The accompanying notes are an integral part of the consolidated financial statements.
Signed on behalf of the Board,
“Timothy C. Baker”
Timothy C. Baker, Director
“William L. Yeates”
William L. Yeates, Director
45
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net loss
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization
Impairment charges
Share-based compensation
Loss on fair value of embedded derivatives
Loss/(gain) on fair value of 5% Convertible Debentures
Loss on repurchase of 5% Convertible Debentures, net
Loss/(gain) on fair value of warrants
Recognition of deferred revenue
Proceeds from Royal Gold stream
Reclamation expenditures
Gain on reduction of rehabilitation provisions
Other
Changes in working capital
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES:
Additions to mining properties
Additions to plant and equipment
Additions to construction in progress
Change in accounts payable and deposits on mine equipment and material
Increase in restricted cash
Proceeds from sale of assets
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES:
Principal payments on debt
Proceeds from debt agreements
Proceeds from 7% Convertible Debentures, net
5% Convertible Debentures repurchase
Proceeds from Royal Gold loan, net
Shares issued, net
Exercise of options
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
For the years ended December 31,
NOTES
2016
2015
$
(41,763)
$
(78,410)
25
15
5
5
5
5
11
11
10
20
24
24
12
12
13
21,173
—
13,850
3,812
17,235
11,594
2,322
(11,267)
60,000
(5,527)
(198)
4,226
(22,208)
53,249
(2,108)
(613)
(81,635)
(2,794)
—
657
37,372
34,396
2,005
—
(1,440)
—
(272)
(9,621)
75,000
(2,947)
(5,652)
3,006
6,711
60,148
(758)
(1,416)
(54,877)
4,974
(4,422)
—
(86,493)
(56,499)
(29,345)
3,000
20,714
(19,941)
—
45,450
22
19,900
(13,344)
35,108
(48,611)
22,000
—
—
18,718
—
—
(7,893)
(4,244)
39,352
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
21,764
$
35,108
(Stated in thousands of U.S. dollars)
See Note 24 for supplemental cash flow information.
The accompanying notes are an integral part of the consolidated financial statements.
46
| GOLDEN STAR RESOURCES
GOLDEN STAR RESOURCES LTD
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
BALANCE AT DECEMBER 31, 2014
Shares issued under DSUs
Options granted net of forfeitures
DSU's granted
Net loss
BALANCE AT DECEMBER 31, 2015
Shares issued (see Note 13)
Shares issued under DSUs
Shares issued under options
Options granted net of forfeitures
DSU's granted
Share issue costs
Net loss
Number of
common
shares
259,490,083
407,012
—
—
—
259,897,095
75,360,692
39,744
58,919
—
—
—
—
Share
capital
Contributed
surplus
Deficit
Non-
controlling
interest
Total
shareholders’
equity
$ 695,266 $ 31,532 $ (725,623) $ (55,368) $ (54,193)
—
652
717
(78,410)
—
—
—
(67,681)
—
—
—
(10,729)
(289)
652
717
—
289
—
—
—
$ 695,555 $ 32,612 $ (793,304) $ (66,097) $ (131,234)
55,180
—
22
751
524
(4,241)
(41,763)
—
—
—
—
—
—
(39,647)
55,180
9
39
—
—
(4,241)
—
—
(9)
(17)
751
524
—
—
—
—
(2,116)
—
—
—
BALANCE AT DECEMBER 31, 2016
335,356,450
$ 746,542 $ 33,861 $ (832,951) $ (68,213) $ (120,761)
(Stated in thousands of U.S. dollars except share data)
The accompanying notes are an integral part of the consolidated financial statements.
47
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
(All currency amounts in tables are in thousands of U.S. dollars unless noted otherwise)
1. NATURE OF OPERATIONS
Golden Star Resources Ltd. ("Golden Star" or "the Company" or "we" or "our") is a Canadian federally-incorporated, international gold mining
and exploration company headquartered in Toronto, Canada. The Company's shares are listed on the Toronto Stock Exchange (the "TSX")
under the symbol GSC, the NYSE MKT under the symbol GSS and the Ghana Stock Exchange under the symbol GSR. The Company's registered
office is located at 150 King Street West, Sun Life Financial Tower, Suite 1200, Toronto, Ontario, M5H 1J9, Canada.
Through a 90% owned subsidiary, Golden Star (Wassa) Limited, we own and operate the Wassa open-pit gold mine, the Wassa underground
mine and a carbon-in-leach ("CIL") processing plant (collectively, “Wassa”), located northeast of the town of Tarkwa, Ghana. Through our 90%
owned subsidiary Golden Star (Bogoso/Prestea) Limited, the Company owns and operates the Bogoso gold mining and processing operations
(“Bogoso”), the Prestea open-pit mining operations and the Prestea underground development project located near the town of Prestea,
Ghana. We hold interests in several gold exploration projects in Ghana and other parts of West Africa, and in South America we hold and
manage exploration properties in Brazil.
2. BASIS OF PRESENTATION
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued
by the International Accounting Standards Board (“IASB") and with interpretations of the International Financial Reporting Interpretations
Committee (“IFRIC”) which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the CPA Canada
Handbook – Accounting.
These consolidated financial statements were approved by the Board of Directors of the Company on February 21, 2017.
Basis of presentation
These consolidated financial statements include the accounts of the Company and its subsidiaries, whether owned directly or indirectly. The
financial statements of the subsidiaries are prepared for the same period as the Company using consistent accounting policies for all periods
presented. All inter-company balances and transactions have been eliminated. Subsidiaries are entities controlled by the Company. Non-
controlling interests in the net assets of consolidated subsidiaries are a separate component of the Company's equity.
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
discharge of all liabilities in the normal course of business.
The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and the
Company's 5% Convertible Debentures which are measured at fair value through profit or loss.
3. SUMMARY OF ACCOUNTING POLICIES
Cash and cash equivalents
Cash includes cash deposits in any currency residing in chequing and sweep accounts. Cash equivalents consist of money market funds and
other highly liquid investments purchased with maturities of three months or less. Investments with maturities greater than three months and
up to one year are classified as short-term investments, while those with maturities in excess of one year are classified as long-term
investments. Cash equivalents and short-term investments are stated at amortized cost, which typically approximates market value.
Inventories
Inventory classifications include “stockpiled ore,” “in-process inventory,” “finished goods inventory” and “materials and supplies”. The stated
value of all production inventories include direct production costs and attributable overhead and depreciation incurred to bring the materials
to their current point in the processing cycle. General and administrative costs for corporate offices are not included in any inventories.
48
| GOLDEN STAR RESOURCES Stockpiled ore represents coarse ore that has been extracted from the mine and is stored for future processing. Stockpiled ore is measured by
estimating the number of tonnes (via truck counts or by physical surveys) added to, or removed from the stockpile, the number of contained
ounces (based on assay data) and estimated gold recovery percentage. Stockpiled ore value is based on the costs incurred (including
depreciation and amortization) in bringing the ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per
tonne and are removed at the average cost per tonne of ore in the stockpile.
In-process inventory represents material that is currently being treated in the processing plants to extract the contained gold and to transform
it into a saleable product. The amount of gold in the in-process inventory is determined by assay and by measure of the quantities of the
various gold-bearing materials in the recovery process. The in-process gold is valued at the average of the beginning inventory and the cost of
material fed into the processing stream plus in-process conversion costs including applicable mine-site overheads, depreciation and
amortization related to the processing facilities.
Finished goods inventory is saleable gold in the form of doré bars. Included in the costs are the direct costs of the mining and processing
operations as well as direct mine-site overheads, amortization and depreciation.
Materials and supplies inventories consist mostly of equipment parts and other consumables required in the mining and ore processing
activities.
All inventories are valued at the lower of average cost or net realizable value.
Property, plant and equipment
Property, plant and equipment assets, including machinery, processing equipment, mining equipment, mine site facilities, buildings, vehicles
and expenditures that extend the life of such assets, are initially recorded at cost including acquisition and installation costs. Property, plant
and equipment are subsequently measured at cost, less accumulated depreciation and accumulated impairment losses.
The costs of self-constructed assets include direct construction costs and direct overhead during the construction phase. Indirect overhead
costs are not included in the cost of self-constructed assets.
Depreciation for mobile equipment and other assets having estimated lives shorter than the estimated life of the ore reserves is calculated
using the straight-line method at rates which depreciate the cost of the assets, less their anticipated residual values, if any, over their estimated
useful lives. Mobile mining equipment is amortized over a five year life. Assets, such as processing plants, power generators and buildings,
which have an estimated life equal to or greater than the estimated life of the ore reserves, are amortized over the life of the proven and
probable reserves of the associated mining property using a units-of-production amortization method, less their anticipated residual values, if
any. The net book value of property, plant and equipment assets is charged against income if the mine site is abandoned and it is determined
that the assets cannot be economically transferred to another project or sold.
The residual values, useful lives and method of depreciation of property, plant and equipment are reviewed at each reporting period end, and
adjusted prospectively if appropriate.
Gains and losses on the disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with
the carrying amount, and are recognized net in the consolidated statement of operations.
Mining properties
Mining property assets, including property acquisition costs, tailings storage facilities, mine-site development and drilling costs where proven
and probable reserves have been established, pre-production waste stripping, condemnation drilling, roads, feasibility studies and wells are
recorded at cost. The costs of self-constructed assets include direct construction costs, direct overhead costs and allocated interest during the
construction phase. Indirect overhead costs are not included in the cost of self-constructed assets.
49
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Mining property assets are amortized over the life of the proven and probable reserves to which they relate, using a units-of-production
amortization method. At open pit mines the costs of removing overburden from an ore body in order to expose ore during its initial
development period are capitalized.
Underground mine development costs
Underground mine development costs include development costs to build new shafts, drifts and ramps that will enable the Company to
physically access ore underground. The time over which the Company will continue to incur these costs depends on the mine life. These
underground development costs are capitalized as incurred. Capitalized underground development costs incurred to enable access to specific
ore blocks or areas of the underground mine, and which only provide an economic benefit over the period of mining that ore block or area,
are depreciated on a units-of-production basis, whereby the denominator is estimated ounces of gold in proven and probable reserves and
the portion of resources within that ore block or area that is considered probable of economic extraction. If capitalized underground
development costs provide an economic benefit over the entire mine life, the costs are depreciated on a units-of-production basis, whereby the
denominator is the estimated ounces of gold in total accessible proven and probable reserves and the portion of resources that is considered
probable of economic extraction.
Betterment stripping (waste removal) costs
As part of its operations, the Company incurs stripping (waste removal) costs both during the development phase and production phase of its
operations. Stripping costs incurred as part of development stage mining activities incurred by the Company are capitalized as part of mining
properties.
Stripping costs incurred during the production stage are incurred in order to produce inventory or to improve access to ore which will be
mined in the future. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a cost of producing
those inventories. Where the costs are incurred to improve access to ore to be mined in the future, the costs are recognized as a stripping
activity asset (a non-current asset) if improved access to the ore body is probable, the component of the ore body can be accurately identified
and the costs associated with improving the access can be reliably measured. If these criteria are not met the cost is expensed to the
consolidated statement of operations as incurred.
The betterment stripping asset is subsequently depreciated using the units-of-production amortization method over the life of the identified
component of the ore body that became more accessible as a result of the betterment stripping activity.
Borrowing costs
Borrowing costs attributable to the acquisition, construction or production of a qualifying asset are capitalized. Qualifying assets are assets
that require a significant amount of time to prepare for their intended use, including projects that are in the exploration and evaluation,
development or construction stages. Capitalized borrowing costs are considered an element of the cost of the qualifying asset which is
determined based on gross expenditures incurred on an asset. Capitalization ceases when the asset is substantially complete or if active
development is suspended or ceases. Where the funds used to finance a qualifying asset form part of general borrowings, the amount
capitalized is calculated using a weighted average of rates applicable to the relevant borrowings during the period. Where funds borrowed
are directly attributable to a qualifying asset, the amount capitalized represents the borrowing costs specific to those borrowings. Other
borrowing costs are recognized as an expense in the period in which they are incurred.
Impairment of long-lived assets
The Company assesses at each reporting period whether there is an indication that an asset or group of assets may be impaired. When
impairment indicators exist, the Company estimates the recoverable amount of the asset and compares it against the asset's carrying
amount. The recoverable amount is the higher of its fair value less cost of disposal ("FVLCD") and the asset's value in use ("VIU"). If the carrying
amount exceeds the recoverable amount, an impairment loss is recorded in the consolidated statement of operations.
In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset not already reflected in the estimates of future cash flows. The cash
flows are based on best estimates of expected future cash flows from the continued use of the asset and its eventual disposal.
FVLCD is best evidenced if obtained from an active market or binding sale agreement. Where neither exists, the fair value is based on the best
estimates available to reflect the amount that could be received from an arm's length transaction.
50
| GOLDEN STAR RESOURCES Future cash flows are based on estimated quantities of gold and other recoverable metals, expected price of gold (considering current and
historical prices, price trends and related factors), production levels and cash costs of production, capital and reclamation costs, all based on
detailed engineered life-of-mine plans.
Numerous factors including, but not limited to, unexpected grade changes, gold recovery variances, shortages of equipment and
consumables, equipment failures, and collapse of pit walls could impact our ability to achieve forecasted production schedules from proven
and probable reserves. Additionally, commodity prices, capital expenditure requirements and reclamation costs could differ from the
assumptions used in the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals
from exploration stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and
probable reserves have been identified, due to the lower level of confidence that the identified mineralized material can ultimately be mined
economically.
If an impairment loss reverses in a subsequent period, the carrying amount (post reversal) of the related asset is increased to the revised
estimate of recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset previously. Reversals of impairment losses are recognized in the statement
of operations in the period the reversals occur.
Material changes to any of the factors or assumptions discussed above could result in future asset impairments.
Rehabilitation provisions
The Company records a liability and corresponding asset for the present value of the estimated costs of legal and constructive obligations for
future site reclamation and closure where the liability is probable and a reasonable estimate can be made of the obligation. The estimated
present value of the obligation is reassessed on a periodic basis or when new material information becomes available. Increases or decreases
to the obligation usually arise due to changes in legal or regulatory requirements, the extent of environmental remediation required, methods
of reclamation, cost estimates, inflation rates, or discount rates. Changes to the provision for reclamation and remediation obligations related
to operating mines, which are not the result of current production of inventory, are recorded with an offsetting change to the related asset.
Changes to the provision for reclamation and remediation obligations related to suspended mine operations are recognized in the
consolidated statements of operations and comprehensive loss. The present value is determined based on current market assessments of the
time value of money using discount rates based on the risk-free rate maturing approximating the timing of expected expenditures to be
incurred, and adjusted for country related risks. The periodic unwinding of the discount is recognized in the consolidated statement of
operations as a finance expense.
Deferred revenue
Deferred revenue consists of payments received by the Company for future delivery of payable gold under the terms of the Company’s
Streaming Agreement. As deliveries are made, the Company will record a portion of the deferred revenue as sales, on a unit of production
basis over the volume of gold expected to be delivered during the term of the streaming arrangement. The amount by which the deferred
revenue balance is reduced and recognized into revenue is based on a rate per ounce of gold delivered under the stream. This rate per ounce
of gold delivered is based on the remaining deferred revenue balance divided by the ounces that are expected to be delivered under the
Stream Arrangement over the life of the arrangement. This estimate is re-evaluated at each reporting period with any resulting changes in
estimate reflected prospectively.
The Streaming Agreement has been recorded as a contract for the future delivery of gold ounces at the contracted price. The upfront
payments are accounted for as prepayments of yet-to-be delivered ounces under the contract and are recorded as deferred revenue.
The initial term of the contract is 40 years and the deposit bears no interest.
Foreign currency transactions
The Company's presentation currency of its consolidated financial statements is the U.S. dollar, as is the functional currency of its operations.
The functional currency of all consolidated subsidiaries is the U.S. dollar. All values are rounded to the nearest thousand, unless otherwise stated.
51
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at period end exchange rates. Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are translated into U.S. dollars at the exchange rate
at the date that the fair value was determined. Income and expense items are translated at the exchange rate in effect on the date of the
transaction. Exchange gains and losses resulting from the translation of these amounts are included in net loss, except those arising on
the translation of available-for-sale investments that are recorded in other comprehensive income. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at historical cost are translated at the exchange rate in effect at the transaction date.
Income taxes
Income taxes comprise the provision for (or recovery of) taxes actually paid or payable (current taxes) and for deferred taxes.
Current taxes are based on taxable earnings in the year. Current tax is calculated using tax rates and laws that were enacted or substantively
enacted at the balance sheet date in the respective jurisdictions.
Current income tax assets and current income tax liabilities are only offset if a legally enforceable right exists to offset the amounts and the
Company intends to settle on a net basis or to realize the asset and settle the liability simultaneously.
Deferred income tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences
between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities
are computed using enacted or substantially enacted income tax rates in effect when the temporary differences are expected to reverse.
The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in the period of substantial enactment. The provision
for or the recovery of deferred taxes is based on the changes in deferred tax assets and liabilities during the period.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized to the extent that it is
probable that taxable earnings will be available against which deductible temporary differences can be utilized.
Net income/(loss) per share
Basic income/(loss) per share of common stock is calculated by dividing income available to Golden Star's common shareholders by the
weighted average number of common shares issued and outstanding during the period. In periods with earnings, the calculation of diluted
net income per common share uses the treasury stock method to compute the dilutive effects of stock options, warrants, convertible
debentures and other potentially dilutive instruments. In periods of loss, diluted net loss per share is equal to basic income per share.
Revenue recognition
Revenue from the sale of metal is recognized when the significant risks and rewards of ownership have passed to the purchaser. This occurs
when the amount of revenue can be measured reliably, the metal has been delivered, title has passed to the buyer and it is probable that the
economic benefits associated with the transaction will flow to the entity. All of our spot sales of gold are transported to a South African gold
refiner who locates a buyer and arranges for sale of our gold on the same day that the gold is shipped from the mine site. The sales price is
based on the London P.M. fix on the day of shipment. Title and risk of ownership pass to the buyer on the day doré is shipped from the mine
sites. Revenue recognition for our stream arrangement is disclosed in the accounting policy for deferred revenue.
Share-based compensation
Under the Company's Fourth Amended and Restated 1997 Stock Option Plan, common share options may be granted to executives,
employees, consultants and non-employee directors. Compensation expense for such grants is recorded in the consolidated statements of
operations and comprehensive loss, with a corresponding increase recorded in the contributed surplus account in the consolidated balance
sheets. The expense is based on the fair value of the option at the time of grant, measured by reference to the fair value determined using a
Black-Scholes valuation model, and is recognized over the vesting periods of the respective options on a graded basis. Consideration paid to
the Company on exercise of options is credited to share capital.
Under the Company's Deferred Share Unit ("DSU") plan, DSUs may be granted to executive officers and directors. Compensation expense for
such grants is recorded in the consolidated statements of operations and comprehensive loss with a corresponding increase recorded in the
contributed surplus account in the consolidated balance sheets. The expense is based on the fair values at the time of grant and is recognized
over the vesting periods of the respective DSUs. Upon exercise the Company's compensation committee may, at its discretion, issue cash,
shares of a combination thereof.
52
| GOLDEN STAR RESOURCES The Company's Share Appreciation Rights ("SARs") plan allows SARs to be issued to executives, employees and directors. These awards
are settled in cash on the exercise date equal to the Company's stock price less the strike price. Since these awards are settled in cash,
the Company marks-to-market the associated expense for each award at the end of each reporting period using a Black-Scholes model.
The Company accounts for these as liability awards and marks-to-market the fair value of the award until final settlement.
Under the Company's Performance Share Units ("PSU") plan, PSUs may be granted to executives, employees and non-employee directors.
Each PSU represents one notional common share that is redeemed for cash based on the value of a common share at the end of the three
year performance period, to the extent performance and vesting criteria have been met. The cash award is determined by multiplying the
number of units by the performance adjusting factor, which range from 0% to 200%. The performance factor is determined by comparing the
Company's share price performance to the share price performance of a peer group of companies. As the Company is required to settle these
awards in cash, they are accounted for as liability awards with corresponding compensation expense recognized. Long term PSU liability is
recognized on the balance sheet as Other Long Term Liability and the current portion is included in accounts payable and accrued liabilities.
Leases
Leases that transfer substantially all of the benefits and risks of ownership to the Company are recorded as finance leases and classified as
property, plant and equipment with a corresponding amount recorded with current and long-term debt. All other leases are classified as
operating leases under which leasing costs are expensed in the period incurred.
Financial instruments
The Company recognizes all financial assets initially at fair value and classifies them into one of the following three categories: fair value
through profit or loss ("FVTPL"), available-for-sale ("AFS") or loans and receivables, as appropriate. The Company has not classified any of
its financial assets as held to maturity.
The Company recognizes all financial liabilities initially at fair value and classifies them as either FVTPL or loans and borrowings, as
appropriate. The Company has not classified any of its derivatives as designated as hedging instruments in an effective hedge.
5% CONVERTIBLE DEBENTURES
The Company's 5% Convertible Debentures are considered financial instruments at FVTPL. The convertible debentures contain embedded
derivatives that significantly modify the cash flows that otherwise would be required by the contract. The convertible debentures are recorded
at fair value determined based on unadjusted quoted prices in active markets when available, otherwise by valuing the embedded derivative
conversion feature and the debt component separately. The conversion feature is valued using a Black-Scholes model and the value of the
debt is determined based on the present value of the future cash flows. Changes in fair value are recorded in the consolidated statement of
operations. Upfront costs and fees related to the convertible debentures were recognized in the statement of operations as incurred and not
deferred.
WARRANTS
The Company's warrants are considered financial instruments at FVTPL. The holder of the warrants can exercise for Golden Star common
shares and has an option to request a cashless exercise. As a result, the warrants have been classified as financial liability instruments and
are recorded at fair value at each reporting period end using a Black-Scholes model. Warrant pricing models require the input of certain
assumptions including price volatility and expected life. Changes in these assumptions could affect the reported fair value of the warrants.
DERIVATIVES
From time to time the Company may utilize foreign exchange and commodity price derivatives to manage exposure to fluctuations in foreign
currency exchange rates and gold prices, respectively. The Company does not employ derivative financial instruments for trading purposes or
for speculative purposes. Our derivative instruments are recorded on the balance sheet at fair value with changes in fair value recorded in the
consolidated statement of operations. The Company did not have any foreign exchange derivatives outstanding at December 31, 2016.
7% CONVERTIBLE DEBENTURES EMBEDDED DERIVATIVE
The Company's 7% Convertible Debentures embedded derivative is considered a financial instrument at FVTPL. The embedded derivative was
recorded at fair value on the date of debt issuance. It is subsequently remeasured at their fair value at each reporting date, and the changes
in the fair value are recorded in the consolidated statement of operations. The fair value of the embedded derivative is determined using a
convertible note valuation model, using assumptions based on market conditions existing at the reporting date.
53
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Share capital
Common shares are classified as equity. Costs directly attributable to the issue of new shares or share options are shown in equity as a
deduction, net of tax, from the gross proceeds.
Changes in accounting policies
The Company has adopted the following new and revised standards, effective January 1, 2016. These changes were made in accordance with
the applicable transitional provisions.
IAS 1 Presentation of financial statements was amended to clarify guidance on materiality and aggregation, the presentation of subtotals, the
structure of financial statements and the disclosure of accounting policies. The adoption of this amendment did not result in any impact to the
Company's financial statements.
IFRS 7 Financial instruments: Disclosures amended to (i) add guidance on whether an arrangement to service a financial asset which has been
transferred constitutes continuing involvement, and (ii) clarify that the additional disclosure required by the amendments to IFRS 7, Disclosure –
Offsetting financial assets and financial liabilities, is not specifically required for interim periods, unless required by IAS 34. The adoption of this
improvement did not result in any impact to the Company's financial statements.
Standards, interpretations and amendments not yet effective
IAS 7 Statement of cash flows – Disclosures related to financing activities was amended to require disclosures about changes in liabilities
arising from financing activities, including both changes arising from cash flows and non-cash changes. This amendment is effective for years
beginning on/after January 1, 2017. The Company does not expect the standard to have a material impact on the financial statements.
IAS 12 Income taxes – Deferred tax was amended to clarify (i) the requirements for recognizing deferred tax assets on unrealized losses;
(ii) deferred tax where an asset is measured at a fair value below the asset's tax base, and (iii) certain other aspects of accounting for deferred
tax assets. This amendment is effective for years beginning on/after January 1, 2017. The Company does not anticipate that there will be any
impact on the financial statements.
IFRS 15 Revenue from Contracts with Customers was amended to clarify how to (i) identify a performance obligation in a contract;
(ii) determine whether a company is a principal or an agent; and (iii) determine whether the revenue from granting a license should be
recognized at a point in time or over time. In additional to the clarifications, the amendments include two additional reliefs to reduce cost and
complexity for a company when it first applies the new standard. The amendments have the same effective date as the standard, which is
January 1, 2018. The Company is still assessing the impact of this standard.
IFRS 16 Leases specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying
asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially
unchanged from its predecessor, IAS 17. IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after
January 1, 2019. The Company is still assessing the impact of this standard.
4. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
Preparation of our consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that can affect reported amounts of assets, liabilities, revenues and expenses and the accompanying disclosures. Estimates and
assumptions are continuously evaluated and are based on management's historical experience and on other assumptions we believe to be
reasonable under the circumstances. However, uncertainty about these judgments, estimates and assumptions could result in outcomes that
require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Inventory valuation
Inventories are recorded at the lower of average cost or net realizable value ("NRV"). The allocation of costs to ore in stockpiles and the
determination of NRV involve the use of estimates. Stockpiled ore represents coarse ore that has been extracted from the mine and is stored
for future processing. Stockpiled ore is measured using estimates such as the number of tonnes (via truck counts or by physical surveys)
added to, or removed from the stockpile, the number of contained ounces (based on assay data) and estimated gold recovery percentage.
Timing and recovery of stockpiled ore can vary significantly from the estimates.
The net realizable value of materials and supplies is recorded based on the expected usage of the inventory items, salvage value and
condition of the inventory items, all of which are based on management estimates and judgments.
54
| GOLDEN STAR RESOURCES Mineral reserves
Determining mineral reserves and resources is a complex process involving numerous variables and is based on a professional evaluation
using accepted international standards for the assessment of mineral reserves. Estimation is a subjective process, and the accuracy of
such estimates is a function of the quantity and quality of available data, the assumptions made and judgments used in engineering and
geological interpretation. Mineral reserve estimation may vary as a result of changes in the price of gold, production costs, and with additional
knowledge of the ore deposits and mining conditions.
Differences between management's assumptions including economic assumptions such as metal prices and market conditions could have a
material effect in the future on the Company's results and financial position, particularly a change in the rate of depreciation and amortization
of the related mining assets and the recognition of deferred revenue.
Betterment stripping costs
Significant judgment is required to distinguish between development stripping, production stripping which relates to extraction of inventory
and development stripping which relates to the creation of a betterment stripping and stripping activity asset. Once the Company has
identified its stripping for each surface mining operation, it identifies the separate components for the ore bodies in each of its mining
operations. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity. Significant
judgment is required to identify these components and to determine the expected volumes (waste and ore) to be stripped in each component.
Judgment is also required to identify a suitable production measure to be used to allocate production stripping costs between inventory and
betterment stripping for each component. The Company considers the ratio of the expected volume of ore to be mined for a specific
component of the ore body to be the most suitable production measure.
Units of production depreciation
The mineral properties and a large portion of the property, plant and equipment is depreciated/amortized using the units of production
method over the expected operating life of the mine based on estimated recoverable ounces of gold, which are the prime determinants of the
life of a mine. Estimated recoverable ounces of gold include proven and probable mineral reserves. Changes in the estimated mineral reserves
will result in changes to the depreciation charges over the remaining life of the operation. A decrease in the mineral reserves would increase
depreciation and amortization expense and this could have a material impact on the operating results. The amortization base is updated on
an annual basis based on the new mineral reserve estimates.
Carrying value of assets and impairment charges
The Company undertakes a review of its assets at each reporting period to determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable amount of the asset or CGU is made, which is considered to be the higher
of its FVLCD and VIU. An impairment loss is recognized when the carrying value of the asset or CGU is higher than the recoverable amount.
In undertaking this review, management of the Company is required to make significant estimates of, amongst other things, discount rates,
future production and sale volumes, metal prices, reserves and resource quantities, future operating and capital costs and reclamation
costs to the end of the mine's life. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the
expected recoverability of the carrying values of the asset or CGU. In determining a CGU, management has examined the smallest identifiable
group of assets that generates cash inflows that are largely independent of cash inflows from other assets or group of assets.
Rehabilitation provisions
Environmental reclamation and closure liabilities are recognized at the time of environmental disturbance, in amounts equal to the discounted
value of expected future reclamation and closure costs. The estimated future cash costs of such liabilities are based primarily upon
environmental and regulatory requirements of the various jurisdictions in which we operate as well as any other constructive obligations that
exist. The liability represents management's best estimates of cash required to settle the liability, inflation, assumptions of risks associated with
future cash flows and the applicable risk-free interest rates for discounting the future cash outflow. The liability is reassessed and remeasured
at each reporting date.
55
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Fair value of financial instruments, including embedded derivatives
Where the fair value of financial assets and financial liabilities recorded in the financial statements cannot be derived from active markets,
their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments
include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the
reported fair value of financial instruments.
When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. Fair values are
categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Income taxes
We deal with uncertainties and judgments in the application of complex tax regulations in the various jurisdictions where our properties are
located. The amount of taxes paid is dependent upon many factors, including negotiations with taxing authorities in the various jurisdictions
and resolution of disputes arising from our international tax audits. We recognize potential liabilities and record tax liabilities for anticipated
tax audit issues in our various tax jurisdictions based on our best estimate of additional taxes payable. We adjust these tax estimates in light
of changing facts and circumstances, however, due to the complexity of some of these uncertainties, the ultimate resolution may result in
payment that is materially different from our estimates of our tax liabilities. If our estimate of tax liability proves to be less than the ultimate
assessment, an additional charge to expense would result. If the estimate of tax liabilities proves to be greater that the ultimate assessment,
a tax benefit is recognized.
A deferred tax asset is recognized to the extent that it is probable that taxable earnings will be available against which deductible temporary
differences can be utilized.
Deferred revenue
Significant judgment is required in determining the appropriate accounting for the Streaming Agreement that has been entered into.
Management has determined that based on the agreements reached that assumes significant business risk associated with the timing and
amount of ounces of gold being delivered. As such, the deposits received have been recorded as deferred revenue liabilities in the consolidated
balance sheet. Deferred revenue is recognized as revenue based on the percentage of ounces delivered in the period over the total estimated
ounces to be delivered over the life of the Streaming Agreement.
Commencement of commercial production
Prior to the period when a mine has reached management’s intended operating levels, costs incurred as part of the development of the related
mining property are capitalized and any gold sales during the development period are offset against the cost capitalized. The Company defines
the commencement of commercial production as the date that a mine has achieved a consistent level of production. Depreciation/amortization
of capitalized costs for mining properties begins when operating levels intended by management has been reached.
There are a number of factors the Company considers when determining if condition exist for the commencement of commercial production
of an operating mine. Management examines the following factors when making that judgement:
•
All major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in the manner intended by
management have been completed;
• The completion of a reasonable period of testing of the mine properties;
• The mine and/or mill has reached a pre-determined percentage of design capacity; and
• The ability to sustain ongoing production of ore.
56
| GOLDEN STAR RESOURCES 5. FINANCIAL INSTRUMENTS
The following tables illustrate the classification of the Company's recurring fair value measurements for financial instruments within the fair
value hierarchy and their carrying values and fair values as at December 31, 2016 and December 31, 2015:
December 31, 2016
December 31, 2015
Level
Carrying
value
Fair
value
Carrying
value
Fair
value
FINANCIAL LIABILITIES
Fair value through profit or loss
5% Convertible Debentures
Warrants
7% Convertible Debentures embedded derivative
3 $ 13,294 $ 13,294 $ 46,406 $ 46,406
407
2
–
3
2,729
15,127
2,729
15,127
407
–
There were no non-recurring fair value measurements of financial instruments as at December 31, 2016.
The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
The Company's policy is to recognize transfers into and transfers out of the fair value hierarchy levels as of the date of the event or change
in circumstances that caused the transfer. During the year ended December 31, 2016, the non-hedge derivative contracts entered into by
the Company were added as Level 2 fair valued financial instruments within the fair value measurement hierarchy. During the year ended
December 31, 2016, the 7% Convertible Senior Notes due 2021 (the "7% Convertible Debentures") embedded derivative was added as Level 3 fair
value instruments within the fair value measurement hierarchy. During the year ended December 31, 2016, there were no transfers into or out of
Level 1 fair value measurements.
The valuation techniques that are used to measure fair value are as follows:
5% CONVERTIBLE DEBENTURES
The debt component of the 5% Convertible Debentures is valued based on discounted cash flows and the conversion feature is valued based
on a Black-Scholes model. The risk free interest rate used in the fair value computation is the interest rate on US treasury bills with maturity
similar to the remaining life of the 5% Convertible Debentures. The discount rate used is determined by adding our risk premium to the risk
free interest rate. A market-based volatility rate has been applied to the fair value computation. Inputs used to determine the fair value on
December 31, 2016 and December 31, 2015 were as follows:
5% CONVERTIBLE DEBENTURES
Risk-free interest rate
Risk premium
Expected volatility
Remaining life (years)
December 31,
2016
December 31,
2015
0.6%
10.6%
40.0%
0.4
1.1%
41.0%
40.0%
1.4
57
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following table presents the changes in the 5% Convertible Debentures for the year ended December 31, 2016:
BALANCE, DECEMBER 31, 2015
Repurchase1
Exchange2
Loss on repurchase, net
Loss in the period included in earnings
BALANCE, DECEMBER 31, 2016
$
Fair value
46,406
(19,941)
(42,000)
11,594
17,235
$
13,294
1
On April 7, 2016, the Company repurchased $3.6 million principal amount of its 5% Convertible Debentures for $1.7 million. On August 3, 2016, the Company repurchased
$18.2 million principal amount of its 5% Convertible Debentures for $18.2 million. Total interest payments of $0.5 million were also made upon repurchase of the
debentures.
2 The Company entered into exchange and purchase agreements with two holders of its 5% Convertible Debentures to exchange $42.0 million principal amount for an
equal principal amount of newly issued 7% Convertible Debentures (see Note 12).
If the risk premium increases by 5%, the fair value of the 5% Convertible Debentures would decrease and the related loss in the Statement of
Operations would decrease by $0.3 million at December 31, 2016. In general, an increase in risk premium would increase the gain on fair value
of the 5% Convertible Debentures.
WARRANTS
As part of the term loan transaction with Royal Gold, Inc. ("RGI"), 5,000,000 warrants to purchase Golden Star shares were issued to RGI.
The warrants have a $0.27 exercise price and expire on July 28, 2019, being the fourth year anniversary of the date of issuance. These
instruments are fair valued based on a Black-Scholes model with the following inputs on December 31, 2016 and December 31, 2015:
WARRANTS
Risk-free interest rate
Expected volatility
Remaining life (years)
The following table presents the fair value changes in the warrants for the year ended December 31, 2016:
Balance, December 31, 2015
Loss in the period included in earnings
BALANCE, DECEMBER 31, 2016
December 31,
2016
2015
0.8%
82.6%
2.6
1.2%
83.2%
3.6
Fair value
$
407
2,322
$
2,729
7% CONVERTIBLE DEBENTURES EMBEDDED DERIVATIVE
The debt component of the 7% Convertible Debentures is recorded at amortized cost using the effective interest rate method, and the
conversion feature is classified as an embedded derivative measured at fair value through profit or loss.
The embedded derivative was valued upon the initial measurement date and at December 31, 2016 using a convertible note valuation model.
The significant inputs used in the convertible note valuation are as follows:
Embedded derivative
Risk-free interest rate
Risk premium
Expected volatility
Remaining life (years)
58
December 31,
2016
1.7%
12.9%
45.0%
4.6
| GOLDEN STAR RESOURCES
The following table presents the changes in the 7% Convertible Debentures embedded derivative for the year ended December 31, 2016:
Balance, August 3, 2016
Gain on conversions
Loss in the period included in earnings
BALANCE, DECEMBER 31, 2016
$
Fair value
12,259
(944)
3,812
$
15,127
If the risk premium increases by 5%, the fair value of the 7% Convertible Debentures embedded derivative would decrease and the related loss
in the Statement of Operations would decrease by $0.1 million at December 31, 2016. In general, an increase in risk premium would increase the
gain on fair value of the derivative liability.
NON-HEDGE DERIVATIVE CONTRACTS
During the year ended December 31, 2016, the Company entered into the following gold forward and collar contracts with maturities of the
contracts ranging from March to December 2016:
• Forward contracts for 9,000 ounces of gold at $1,188 per ounce; and
• Costless collars consisting of puts and calls, on 38,000 ounces of gold with a floor price of $1,125 per ounce and a ceiling ranging between
$1,240 per ounce and $1,325 per ounce.
The non-hedge accounted forward and collar contracts were considered fair value through profit or loss financial instruments with fair value
determined using pricing models that utilize a variety of observable inputs that are a combination of quoted prices, applicable yield curves
and credit spreads.
During the year ended December 31, 2016, the Company recognized losses of $2.3 million on settled derivative contracts. All of the derivative
contracts the Company entered into in 2016 have been settled. At December 31, 2016, there were no outstanding gold forward and collar contracts.
6. INVENTORIES
Inventories include the following components:
Stockpiled ore
In-process ore
Materials and supplies
Finished goods
TOTAL
$
As of December 31,
$
2016
23,833
5,008
14,824
716
2015
20,338
3,843
12,024
489
$
44,381
$
36,694
The cost of inventories expensed for the year ended December 31, 2016 and 2015 was $160.5 million and $232.6 million, respectively.
No materials and supplies inventories were written off in the year ended December 31, 2016 (year ended December 31, 2015 – $12.9 million of
materials and supplies inventories and $12.8 million of refractory ore inventory). $1.2 million of net realizable value adjustments were recorded
for stockpiled ore in the year ended December 31, 2016 (year ended December 31, 2015 – $2.2 million on stockpiled and in-process ore).
59
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
7. MINING INTERESTS
The following table shows the breakdown of the cost, accumulated depreciation and net book value of plant and equipment, mining
properties and construction in progress:
COST
AS OF DECEMBER 31, 2014
Additions
Transfers
Capitalized interest
Change in rehabilitation provision estimate
Disposals and other
AS OF DECEMBER 31, 2015
Additions
Transfers
Capitalized interest
Change in rehabilitation provision estimate
Disposals and other
Plant and
equipment
Mining
properties
Construction
in progress
Total
$ 454,074
$ 713,471
$
1,416
6,881
—
—
(9,726)
$ 452,645
$
613
9,379
—
—
(1,199)
758
14,810
—
707
—
729,746
2,108
12,749
—
2,054
—
$
38,716
52,042
(21,691)
2,835
—
—
71,902
75,375
(22,128)
6,260
—
—
$ 1,206,261
54,216
—
2,835
707
(9,726)
$ 1,254,293
78,096
—
6,260
2,054
(1,199)
AS OF DECEMBER 31, 2016
$ 461,438
$ 746,657
$
131,409
$ 1,339,504
ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2014
Depreciation and amortization
Disposals and other
Impairment charges (see Note 25)
AS OF DECEMBER 31, 2015
Depreciation and amortization
Disposals and other
AS OF DECEMBER 31, 2016
CARRYING AMOUNT
As of December 31, 2014
As of December 31, 2015
$ 405,844
$
21,218
(7,941)
4,544
$ 423,665
$
8,673
(640)
$
$
648,329
18,954
9,306
4,190
680,779
12,010
—
9,306
—
(9,306)
—
$ 1,063,479
40,172
(7,941)
8,734
—
—
—
$ 1,104,444
20,683
(640)
$
431,698
$ 692,789
$
—
$ 1,124,487
$
48,230
$
65,142
$
29,410
$ 142,782
$
28,980
$
48,967
$
71,902
$ 149,849
AS OF DECEMBER 31, 2016
$
29,740
$
53,868
$ 131,409
$ 215,017
As at December 31, 2016, equipment under finance leases had net carrying amounts of $1.1 million. The total minimum lease payments are
disclosed in Note 12 – Debt.
Construction in progress is shown net of $13.6 million (2015 – $nil) pre-commercial production revenue from the Wassa Underground
development project. No depreciation is charged to construction in progress assets. For the year ended December 31, 2016, the general
capitalization rate for borrowing costs was 7%.
60
| GOLDEN STAR RESOURCES
8. INCOME TAXES
We recognize deferred tax assets and liabilities based on the difference between the financial reporting and tax basis of assets and liabilities
using the tax rates enacted or substantively enacted when the temporary differences are expected to reverse.
Our net deferred tax liabilities at December 31, 2016 and December 31, 2015 include the following components:
DEFERRED TAX ASSETS
Non-capital loss carryovers
Other
DEFERRED TAX LIABILITIES
Mine property costs
Other
NET DEFERRED TAX LIABILITIES
The composition of our unrecognized deferred tax assets by tax jurisdiction is summarized as follows:
DEDUCTIBLE TEMPORARY DIFFERENCES
Canada
U.S.
Ghana
TAX LOSSES
Canada
U.S.
Ghana
TOTAL UNRECOGNIZED DEFERRED TAX ASSETS
Canada
U.S.
Ghana
As of December 31,
2016
2015
$
9,349
—
$
9,268
697
9,349
—
$
—
$
5,359
4,606
—
As of December 31,
2016
2015
$
$
12,421
—
49,777
5,051
—
53,759
$
62,198
$
58,810
$
$
41,731
309
262,719
37,054
274
248,908
$ 304,759
$ 286,236
$
$
54,152
309
312,496
42,105
274
302,667
$
366,957
$ 345,046
61
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The income taxes recovery includes the following components:
CURRENT TAX RECOVERY
Current tax on net earnings
Adjustments in respect to prior years
INCOME TAX RECOVERY
For the years ended December 31,
2016
2015
$
$
—
—
$
—
$
—
—
—
A reconciliation of expected income tax on net loss before minority interest at statutory rates with the actual income tax recovery is as follows:
Net loss before tax
Statutory tax rate
TAX BENEFIT AT STATUTORY RATE
Foreign tax rates
Expired loss carryovers
Other
Non taxable/deductible items
Change in deferred tax assets due to exchange rates
Change in unrecognized deferred tax assets
INCOME TAX RECOVERY
At December 31, 2016, the Company had a tax pool and loss carryovers expiring as follows:
For the years ended December 31,
$
$
$
$
2016
(41,763)
26.5%
(11,067)
(12,555)
3,052
(30)
641
(894)
20,853
2015
(78,410)
26.5%
(20,779)
(19,187)
1,938
38
584
5,049
32,357
$
—
$
—
2018
2019
2020
2021
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Indefinite
TOTAL
$
Canada
Ghana
Other
$
—
—
—
—
3,862
11,407
11,280
17,105
15,288
28,682
13,884
7,415
10,683
8,175
16,124
26,324
$
46,540
19,460
109,841
601,496
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
402
364
115
—
—
$ 170,229
$ 777,337
$
883
$722.8 million of the Ghana tax pool is usable against taxable income generated at Bogoso/Prestea, with the remaining amount totaling
$54.5 million usable against taxable income generated at Wassa.
62
| GOLDEN STAR RESOURCES
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following components:
Trade and other payables
Accrued liabilities
Payroll related liabilities
Accrued severance
TOTAL
$
As of December 31,
$
2016
48,591
38,071
8,311
—
2015
71,081
31,496
6,376
1,858
$
94,973
$ 110,811
During the year ended December 31, 2016, the Company entered into an agreement with a significant current account creditor to settle
$36.5 million of current liabilities. Under this agreement, the Company paid $12.0 million and deferred the payment of the remaining
$24.5 million until January 2018, after which the outstanding balance will be repaid in equal installments over 24 months commencing on
January 31, 2018 (see Note 12).
10. REHABILITATION PROVISIONS
At December 31, 2016, the total undiscounted amount of the estimated future cash needs was estimated to be $84.4 million. A discount rate
assumption of 2% and an inflation rate assumption of 2% were used to value the rehabilitation provisions. The changes in the carrying amount
of the rehabilitation provisions are as follows:
BEGINNING BALANCE
Accretion of rehabilitation provisions
Changes in estimates
Cost of reclamation work performed
BALANCE AT THE END OF THE PERIOD
Current portion
Long term portion
TOTAL
For the years ended December 31,
$
$
2016
79,685
1,368
1,856
(5,527)
2015
85,816
1,761
(4,945)
(2,947)
$
77,382
$
79,685
$
5,515
71,867
$
3,660
76,025
$
77,382
$
79,685
For the year ended December 31, 2016, the Company has recorded a change of estimate of $1.9 million on its rehabilitation provisions of the
mine sites. The impact of the changes of estimates were an increase of $1.3 million to the reclamation provisions for Wassa and an increase
of $0.6 million to the reclamation provisions for Bogoso/Prestea. The rehabilitation provision for Wassa was $19.3 million (2015 – $18.8 million)
The Company expects the payments for reclamation to be incurred between 2017 to 2026. An increase in estimate for Wassa of $1.3 million was
recorded due to a revision in the timing of payments. The rehabilitation provision for Bogoso/Prestea was $58.1 million (2015 – $60.9 million).
The Company expects the payments for reclamation to be incurred between 2017 to 2027. An increase in estimate for Bogoso/Prestea of
$0.6 million relates to a $0.2 million reduction in expected reclamation costs relating to the refractory operation and a $0.8 million increase in
the expected reclamation costs relating to the non-refractory operation. The reduction of $0.2 million relating to the reclamation costs of the
refractory operation was recorded as other income since the carrying value of the underlying refractory assets were $nil after suspension of its
operation in 2015.
63
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
11. DEFERRED REVENUE
On July 28, 2015, the Company through its subsidiary Caystar Finance Co. completed a $130 million gold purchase and sale agreement
(“Streaming Agreement”) with RGLD Gold AG (“RGLD”), a wholly-owned subsidiary of RGI. This Streaming Agreement was subsequently
amended on December 30, 2015 to provide an additional $15 million of streaming advance payment with an option, subject to Golden Star
satisfying certain conditions, to access a further $5 million (this option was not exercised and has expired). The Streaming percentages were
adjusted as follows to reflect the $15 million additional advance payment: From January 1, 2016, the Company will deliver 9.25% of the Mines’
production to RGLD at a cash purchase price of 20% of spot gold. From the earlier of January 1, 2018 or commercial production of the
underground mines, Golden Star will deliver 10.5% of production at a cash purchase price of 20% of spot gold until 240,000 ounces have
been delivered. Thereafter, 5.5% of production at a cash purchase price of 30% of spot gold will be delivered.
The upfront payments are accounted for as prepayments of yet-to-be delivered ounces under the contract and are recorded as deferred
revenue. The initial term of the contract is 40 years and the deposit bears no interest.
During the year ended December 31, 2016, the Company sold 17,664 ounces of gold to RGLD. Revenue recognized on the ounces sold to RGLD
during the year ended December 31, 2016 consisted of $4.4 million of cash payments received and $11.3 million of deferred revenue recognized
in the period (see Note 17). The Company has delivered a total of 30,365 ounces of gold to RGLD since the inception of the Streaming
Agreement.
BEGINNING BALANCE
Deposits received
Deferred revenue recognized
BALANCE AT THE END OF THE PERIOD
Current portion
Long term portion
TOTAL
For the years ended December 31,
$
2016
65,379
60,000
(11,267)
$
2015
—
75,000
(9,621)
$ 114,112
$
65,379
$
19,234
94,878
$
11,507
53,872
$ 114,112
$
65,379
64
| GOLDEN STAR RESOURCES
12. DEBT
The following table displays the components of our current and long term debt instruments:
CURRENT DEBT:
Equipment financing credit facility
Finance leases
Ecobank Loan II
5% Convertible Debentures at fair value (see Note 5)
Current portion of vendor agreement
TOTAL CURRENT DEBT
LONG TERM DEBT:
Equipment financing credit facility
Finance leases
Ecobank Loan II
5% Convertible Debentures at fair value (see Note 5)
7% Convertible Debentures
Royal Gold loan
Vendor agreement
TOTAL LONG TERM DEBT
Current portion
Long term portion
TOTAL
As of December 31,
2016
2015
$
931
$
1,153
—
13,294
—
2,761
1,016
4,889
—
13,369
$
15,378
$
22,035
$
$
188
806
—
—
47,617
18,496
22,338
1,625
2,019
16,548
46,406
—
18,175
7,126
$
89,445
$
91,899
$
15,378
89,445
$
22,035
91,899
$ 104,823
$ 113,934
Equipment financing credit facility
Bogoso/Prestea and Wassa maintained an equipment financing facility with Caterpillar Financial Services Corporation, with Golden Star as
the guarantor of all amounts borrowed. The facility provided credit financing for mining equipment at a fixed interest rate of 6.5%. Amounts
drawn under this facility are repayable over a period of two to five years. Each outstanding equipment loan is secured by the title of the
specific equipment purchased with the loan until the loan has been repaid in full.
Finance leases
The Company financed mining equipment at Wassa and Bogoso/Prestea through equipment financing leases. These finance leases are
payable in equal installments over a period of 60 months and have implicit interest rates of 6.9%. Each outstanding finance lease is secured
by the title of the specific equipment purchased with the lease until the lease has been repaid in full.
Ecobank Loan II
In the third quarter of 2014, the Company through its subsidiary Golden Star (Wassa) Limited closed a $25 million secured Medium Term Loan
Facility ("Ecobank Loan II") with Ecobank Ghana Limited. This $25 million loan had a term of 60 months from the date of initial drawdown and
was secured by, among other things, Wassa's existing plant, machinery and equipment. The interest rate on the loan was three month LIBOR
plus 11%, per annum, payable monthly in arrears beginning a month following the initial drawdown.
During the year ended December 31, 2015, the Company drew down $22.0 million on the Ecobank Loan II.
During the first quarter of 2016, the Company drew down the remaining $3 million of the Ecobank Loan II. During the third quarter of 2016,
the Ecobank Loan II, as well as all accrued interest thereon, was repaid in full using the proceeds from the shares issued in the Equity Offering
(see Note 13).
65
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
5% Convertible Debentures
The 5% Convertible Debentures were issued on May 31, 2012, in the amount of $77.5 million, in exchange for $74.5 million of our 4% convertible
senior unsecured debentures (the "4% Convertible Debentures") in privately negotiated transactions with certain holders of the 4% Convertible
Debentures.
The 5% Convertible Debentures are governed by the terms of an indenture dated May 31, 2012, by and between the Company and The Bank of
New York Mellon, as Indenture Trustee.
Interest on the 5% Convertible Debentures is payable semi-annually in arrears on May 31 and November 30 of each year until maturity on
June 1, 2017. The 5% Convertible Debentures are, subject to certain limitations, convertible into common shares at a conversion rate of 606.0606
common shares per $1,000 principal amount of the 5% Convertible Debentures (equal to an initial conversion price of $1.65 per share), or
approximately 25% above the closing price of the Company's common shares on the NYSE MKT on May 17, 2012, the last full trading day prior
to entry into the purchase agreement. The 5% Convertible Debentures are not redeemable at the Company's option, except in the event of
certain change in control transactions where 90% or more of the outstanding 5% Convertible Debentures have accepted a mandatory offer
from the Company to purchase them.
On maturity, the Company may, at its option, satisfy the repayment obligation by paying the principal amount of the 5% Convertible
Debentures in cash or, subject to certain limitations, by issuing that number of the Company's common shares obtained by dividing the
principal amount of the 5% Convertible Debentures outstanding by 95% of the weighted average trading price of the Company's common
shares on the NYSE MKT for the 20 consecutive trading days ending five trading days preceding the maturity date (the "Current Market Price")
provided that the aggregate maximum number of common shares to be issued may not exceed 19.99% of the issued and outstanding
common shares as of the closing date. If the Company elects to repay the principal amount of the 5% Convertible Debentures at maturity by
issuing common shares, and the Company is limited under the terms of the indenture from issuing a number of common shares sufficient to
fully repay the 5% Convertible Debentures outstanding at maturity, the Company is required to pay the balance owing in cash, based on the
difference between the principal amount of the 5% Convertible Debentures outstanding and the value of the common shares (based on the
Current Market Price) delivered in repayment of the 5% Convertible Debentures.
The 5% Convertible Debentures are direct senior unsecured indebtedness of the Company, ranking equally and ratably with all other senior
unsecured indebtedness, and senior to all subordinated indebtedness of the Company. None of the Company's subsidiaries has guaranteed the
5% Convertible Debentures, and the 5% Convertible Debentures do not limit the amount of debt that the Company or our subsidiaries may incur.
The 5% Convertible Debentures are accounted for at fair value and marked to market each reporting period and the corresponding gain/loss
on fair value is recorded in the Statement of Operations.
On April 7, 2016, the Company repurchased $3.6 million principal amount of its 5% Convertible Debentures for $1.7 million. On August 3, 2016, the
Company repurchased $18.2 million principal amount of its 5% Convertible Debentures for $18.2 million. Total interest payments of $0.5 million
were also made upon repurchase of the debentures. The Company recorded a loss on repurchase of $11.6 million (see Note 5). As at December 31,
2016, $13.6 million principal amount of 5% Convertible Debentures remains outstanding.
During the year ended December 31, 2016, the Company entered into exchange and purchase agreements with two holders of its 5%
Convertible Debentures to exchange $42.0 million principal amount of the outstanding convertible debentures for an equal principal amount
of newly issued 7% Convertible Debentures.
The 5% Convertible Debentures mature on June 1, 2017, and therefore have been classified as current liabilities.
As at December 31, 2016, the fair value of the 5% Convertible Debentures is valued at $13.3 million with a loss on fair value of $17.2 million and a
loss on repurchase of $11.6 million recorded in the year ended December 31, 2016 (see Note 5).
66
| GOLDEN STAR RESOURCES 7% Convertible Debentures
The 7% Convertible Debentures were issued on August 3, 2016, in the amount of $65.0 million due August 15, 2021. The Company entered into
exchange and purchase agreements with two holders of its 5% Convertible Debentures due June 1, 2017 to exchange $42.0 million principal
amount of the outstanding 5% Convertible Debentures for an equal principal amount of 7% Convertible Debentures (the "Exchange"), with
such principal amount being included in the issuance of the $65.0 million total aggregate principal amount of the 7% Convertible Debentures.
The Company did not receive any cash proceeds from the Exchange. The 7% Convertible Debentures are governed by the terms of an
indenture dated August 3, 2016, by and between the Company and The Bank of New York Mellon, as indenture trustee.
The 7% Convertible Debentures are senior unsecured obligations of the Company, bear interest at a rate of 7.0% per annum, payable
semi-annually on February 1 and August 1 of each year, beginning on February 1, 2017, and will mature on August 15, 2021, unless earlier
repurchased, redeemed or converted. Subject to earlier redemption or purchase, the 7% Convertible Debentures are convertible at any time
until the close of business on the third business day immediately preceding August 15, 2021 at the option of the holder, and may be settled,
at the Company's election, in cash, common shares of the Company, or a combination of cash and common shares based on an initial
conversion rate. The initial conversion rate of the 7% Convertible Debentures, subject to adjustment, is approximately 1,111 common shares of
the Company per $1,000 principal amount of 7% Convertible Debentures being converted, which is equivalent to an initial conversion price
of approximately $0.90 per common share. The initial conversion price represents a 20% premium to the price per common share in the
concurrent public offering of the Company's common shares that was completed on August 3, 2016 (see Note 13). The initial conversion rate
is subject to adjustment upon the occurrence of certain events. If the 7% Convertible Debentures are converted before August 1, 2019, the
Company will, in addition to the consideration payable with the conversion, be required to make a conversion make-whole payment in cash,
common shares of the Company or a combination thereof, at the Company's election, equal to the present value of the remaining scheduled
payments of interest that would have been made on the 7% Convertible Debentures converted had such debentures remained outstanding
from the conversion date to August 1, 2019, subject to certain restrictions. The present value of the remaining scheduled interest payments will
be computed using a discount rate equal to 2.0%.
Prior to August 15, 2019, the Company may not redeem the 7% Convertible Debentures except in the event of certain changes in applicable tax
law. On or after August 15, 2019, the Company may redeem all or part of the outstanding 7% Convertible Debentures at the redemption price,
only if the last reported sales price of the Company's common shares for 20 or more trading days in a period of 30 consecutive trading days
ending on the trading day prior to the date the Company provides the notice of redemption to holders exceeds 130% of the conversion price in
effect on each such trading day. The redemption price is equal to the sum of (1) 100% of the principal amount of the 7% Convertible Debentures
to be redeemed, (2) any accrued and unpaid interest to, but excluding, the redemption date, and (3) a redemption make-whole payment,
payable in cash, common shares of the Company or a combination thereof, at the Company's election, equal to the present value of the
remaining scheduled payments of interest that would have been made on the 7% Convertible Debentures to be redeemed had such
debentures remained outstanding from the redemption date to August 15, 2021 (excluding interest accrued to, but excluding, the redemption
date, which is otherwise paid pursuant to the preceding clause (2)). The present value of the remaining scheduled interest payments will be
computed using a discount rate equal to 2.0%.
The conversion feature referred to above is an embedded derivative. The Company selected to bifurcate the conversion feature from the host
instrument, thereby separating it from the debt component. The debt component is recorded at amortized cost, and the embedded derivative
is accounted for at fair value. At August 3, 2016, the date of the debt issuance, the fair value of the embedded derivative was $12.3 million.
At December 31, 2016, the fair value of the embedded derivative was $15.1 million. The revaluation loss of $3.8 million and gain on conversions
of $0.9 million is recorded in the Statement of Operations (see Note 5).
On November 1, 2016, $1.0 million principal amount of the 7% Convertible Debentures was converted for 1,111,111 common shares. On December 6,
2016, $4.0 million principal amount of the 7% Convertible Debentures was converted for 4,444,444 common shares. On December 8, 2016,
$1,000 principal amount of the 7% Convertible Debentures was converted for 1,111 common shares. The Company recorded a net gain on
conversions of $0.05 million. As at December 31, 2016, $60.0 million principal amount of 7% Convertible Debentures remains outstanding.
67
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following table presents the Balance Sheet information related to the 7% Convertible Debentures at December 31, 2016:
Principal value of the debt component
Unamortized value of the debt discount and issuance costs
Conversions
Share issue costs allocated on conversion
NET CARRYING VALUE OF THE DEBT COMPONENT
As of December 31,
$
2016
65,000
(13,675)
(3,883)
175
$
47,617
Royal Gold loan
In July 2015, the Company through its subsidiary Caystar Finance Co. closed a $20 million term loan with RGI and subsequently drew down
$20 million of the facility. The loan has a term of 4 years and is secured by, among other things, assets of Wassa and Bogoso/Prestea. Interest
is payable based on the average daily London Bullion Market Association (“LBMA”) gold price multiplied by 62.5% divided by 10,000 to a
maximum interest rate of 11.5% per annum. Interest payments are to be made on the last business day of each fiscal quarter, commencing
in the quarter which the funding occurred. Commencing June 30, 2017, the Company will be required to make mandatory repayments at a
percentage of any excess cash flow earned. For the year ended December 31, 2016, the interest rate was approximately 8% with a total of
$1.6 million paid during the year ended December 31, 2016. The fair value of the loan is determined net of initial valuation of the warrants
issued to RGI and financing fees incurred.
Vendor agreement
During the year ended December 31, 2015, the Company reached an agreement with a significant account creditor, to repay $30.4 million of
payables. The plan included a deferral of $22.0 million of amounts owed to 2016 and 2017, which were reclassified from accounts payable to
other long term liabilities, net of a $2.4 million gain on deferral of other long term liabilities and $0.9 million of accretion thereof in the year
ended December 31, 2015.
On May 4, 2016, the Company entered into another agreement with the same creditor which superseded the previous agreement, to settle
$36.5 million of current liabilities. Under this current agreement, the Company paid $12.0 million and deferred the payment of the remaining
$24.5 million until January 2018, after which the outstanding balance will be repaid in equal installments over 24 months commencing on
January 31, 2018. Interest of 7.5% will accrue and be payable beginning in January 2017. A $2.7 million gain was recognized in Other Income
on remeasurement of the deferral during the second quarter of 2016.
68
| GOLDEN STAR RESOURCES
Schedule of payments on outstanding debt as of December 31, 2016:
Year ending December 31,
2017
2018
2019
2020
2021
Maturity
EQUIPMENT FINANCING LOANS
Principal
Interest
$
931 $
34
188 $
4
806
24
—
—
—
4,200
—
1,500
12,266
1,418
— $
—
—
—
—
—
—
4,200
20,000
875
12,266
498
$
—
—
—
—
—
2016 to 2018
2018
June 1, 2017
—
—
—
—
—
—
—
4,200
59,999 August 15, 2021
4,200
2019
—
—
—
—
—
—
—
—
1,153
100
13,611
340
—
4,200
—
1,500
—
1,840
FINANCE LEASES
Principal
Interest
5% CONVERTIBLE DEBENTURES
Principal
Interest
7% CONVERTIBLE DEBENTURES
Principal
Interest
ROYAL GOLD LOAN
Principal
Interest1
VENDOR AGREEMENT
Principal
Interest
TOTAL PRINCIPAL
TOTAL INTEREST
$
15,695 $
8,014
3,260 $
7,146
32,266 $
5,573
— $
4,200
59,999
4,200
$
23,709 $
20,406 $
37,839 $
4,200 $
64,199
1
Interest payments on the Royal Gold loan are based on the average daily London Bullion Market Association ("LBMA") gold price multiplied by 62.5% divided by 10,000 to
a maximum interest rate of 11.5% per annum. The estimated interest payments are calculated based on $1,200 per ounce LBMA gold price.
69
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
13. SHARE CAPITAL
BALANCE AT DECEMBER 31, 2014
Shares issued under DSUs
BALANCE AT DECEMBER 31, 2015
Bought deal
Equity offering
Conversion of 7% Convertible Debentures
Shares issued under DSUs
Shares issued under options
Share issue costs
BALANCE AT DECEMBER 31, 2016
Number of
common shares
Share
capital
259,490,083
407,012
$ 695,266
289
a
b
c
259,897,095
22,750,000
46,000,000
6,610,692
39,744
58,919
—
$ 695,555
15,015
34,500
5,665
9
39
(4,241)
335,356,450
$ 746,542
a.
b.
On April 28, 2016, the Company entered into an agreement with BMO Nesbitt Burns Inc. (the "Underwriter") under which the Underwriter
purchased on a bought deal basis 22,750,000 common shares at a price of $0.66 per share for gross proceeds of $15.0 million. The
Company incurred share issue costs of $1.3 million resulting in net proceeds of $13.7 million. The net proceeds were used for settlement
with a significant current account creditor.
On August 3, 2016, the Company issued 40,000,000 common shares in an underwritten public offering led by the Underwriter, at a price of
$0.75 per share (the "Equity Offering"). The Company granted the underwriters of the Equity Offering a 30-day option to purchase up to
6,000,000 additional common shares. The option was exercised for 6,000,000 common shares on August 3, 2016 resulting in gross proceeds
under the Equity Offering of $34.5 million. The Company incurred share issue costs of $2.7 million resulting in net proceeds of $31.8 million.
c. During the year ended December 31, 2016, the following conversions of the 7% Convertible Debentures occurred:
•
◦ On November 1, 2016, the Company issued 1,111,111 common shares on conversion of $1.0 million principal amount of the 7% Convertible
Debentures.
• ◦ On December 6, 2016, the Company issued 4,444,444 common shares on conversion of $4.0 million principal amount of the 7%
Convertible Debentures. The Company also issued 1,054,026 common shares as a make-whole payment on conversion.
•
◦ On December 8, 2016, the company issued 1,111 common shares on conversion of $1,000 principal amount of the 7% Convertible
Debentures.
The Company recorded $5.7 million shares issued and share issue costs of $0.2 million, resulting in $5.5 million net. The Company also recorded
a net gain on conversions of $0.05 million.
14. COMMITMENTS AND CONTINGENCIES
Our commitments and contingencies include the following items:
Environmental bonding in Ghana
The Ghana Environmental Protection Agency ("EPA") requires environmental compliance bonds that provide assurance for environmental
remediation at our Bogoso/Prestea and Wassa mining operations. To meet this requirement the Company has environmental bonds totaling
$9.6 million and $8.1 million for Wassa and Bogoso/Prestea respectively with a commercial bank in Ghana. These bonds are guaranteed by
Golden Star Resources Ltd. There is also a cross guarantee between Wassa and Bogoso/Prestea. The Company also held cash deposits of
$3.5 million and $3.0 million for each operation, which are recorded as restricted cash on the consolidated balance sheets.
Government of Ghana's rights to increase its participation
Under Act 703, the Government of Ghana has the right to acquire a special share in our Ghanaian 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 special share carries no voting rights and does not participate in dividends, profits or assets. If the
Government of Ghana acquires a special share, it may require us to redeem the special share at any time for no consideration or for
consideration determined by us. To date, the Government of Ghana has not sought to exercise any of these rights at our properties.
70
| GOLDEN STAR RESOURCES Royalties
GOVERNMENT OF GHANA
The Ghana Government receives a royalty equal to 5% of mineral revenues earned by Bogoso/Prestea and Wassa.
DUNKWA PROPERTIES
As part of the acquisition of the Dunkwa properties in 2003, the Company agreed to pay the seller a net smelter return royalty on future gold
production from the Mansiso and Asikuma properties. As per the acquisition agreement, there will be no royalty due on the first 200,000
ounces produced from Mampon which is located on the Asikuma property. The amount of the royalty is based on a sliding scale which
ranges from 2% of net smelter return at gold prices at or below $300 per ounce and progressively increases to 3.5% for gold prices in excess
of $400 per ounce. Since this property is currently undeveloped, we are not required to pay a royalty on this property.
Exploration agreements
OBUOM
In October 2007, we entered into an agreement with AMI Resources Inc. (“AMI”), which gives AMI the right to earn our 54% ownership position in
the Obuom property in Ghana. Should AMI eventually obtain full rights to our position on the property and develop a gold mining operation at
Obuom, we would receive from AMI a 2% net smelter return royalty on 54% of the property’s gold production.
Operating leases and capital commitments
The Company is a party to certain contracts relating to operating leases, office rent and capital commitments. Future minimum payments
under these agreements as at December 31, 2016 are as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
TOTAL
$
2,643
1,440
2
$
4,085
15. SHARE-BASED COMPENSATION
Non-cash employee compensation expenses recognized in general and administrative expense in the Statements of Operations and
Comprehensive Loss are as follows:
Share options
Deferred share units
Share appreciation rights
Performance share units
For the years ended December 31,
$
$
2016
751
524
616
11,959
2015
652
717
39
597
$
13,850
$
2,005
Share options
On May 5, 2016, the Fourth Amended and Restated 1997 Stock Option Plan (the “Fourth Amended and Restated 1997 Stock Option Plan”) was
approved by shareholders to (i) reserve an additional 10,000,000 common shares for the Fourth Amended and Restated 1997 Stock Option
Plan, thereby increasing the total number of common shares issuable from 25,000,000 Common Shares under the Stock Option Plan to
35,000,000 common shares under the Fourth Amended and Restated 1997 Stock Option Plan; (ii) provide for the grant of “incentive stock
options” (being stock options designated as “incentive stock options” in an option agreement and that are granted in accordance with the
requirements of, and that conforms to the applicable provisions of, Section 422 of the Internal Revenue Code); and (iii) to make such other
changes to update the provisions of the Stock Option Plan in light of current best practices. Options granted are non-assignable and are
exercisable for a period of ten years or such other period as is stipulated in a stock option agreement between Golden Star and the optionee.
Under the Plan, we may grant options to employees, consultants and directors of the Company or its subsidiaries for up to 35,000,000 shares,
of which 11,107,216 are available for grant as of December 31, 2016. The exercise price of each option is not less than the closing price of our
shares on the Toronto Stock Exchange on the day prior to the date of grant. Options typically vest over periods ranging from immediately to
four years from the date of grant. Vesting periods are determined at the discretion of the Compensation Committee.
71
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The fair value of option grants is estimated at the grant dates using the Black-Scholes option-pricing model. Fair values of options granted
during the year ended December 31, 2016 and 2015 were based on the weighted average assumptions noted in the following table:
Expected volatility
Risk-free interest rate
Expected lives
Dividend yield
For the years ended December 31,
2016
2015
72.40%
1.28%
4.86 years
0%
68.98%
1.30%
5.59 years
0%
Expected volatilities are based on the mean reversion tendency of the volatility of Golden Star's shares. Golden Star uses historical data to
estimate share option exercise and employee departure behavior and this data is used in determining input data for the Black-Scholes model.
Groups of employees that have dissimilar historical behavior are considered separately for valuation purposes. The expected term of the
options granted represents the period of time that the options granted are expected to be outstanding. The risk-free rate for periods within
the contractual term of the option is based on the Bank of Canada administered interest rates in effect at the time of the grant.
The weighted average fair value per option granted during the year ended December 31, 2016 was $0.35 (year ended December 31, 2015 – $0.23).
As at December 31, 2016, there was $0.3 million of share-based compensation expense (December 31, 2015 – $0.3 million) relating to the
Company's share options to be recorded in future periods. For the year ended December 31, 2016, the Company recognized an expense of
$0.8 million (year ended December 31, 2015 – $0.7 million).
A summary of option activity under the Company's Fourth Amended and Restated 1997 Stock Option Plan during the year ended December 31,
2016 are as follows:
Weighted-
average
exercise
price ($CAD)
Weighted-
average
remaining
contractual
term (years)
2.01
0.38
2.36
4.58
1.48
0.62
0.48
1.09
3.25
1.29
1.84
1.55
5.7
9.4
4.4
—
5.9
8.7
8.7
5.4
—
5.7
4.8
4.8
Options
(’000)
14,935
3,421
(4,340)
(105)
13,911
3,245
(59)
(610)
(368)
16,119
10,050
11,738
OUTSTANDING AS OF DECEMBER 31, 2014
Granted
Forfeited
Expired
OUTSTANDING AS OF DECEMBER 31, 2015
Granted
Exercised
Forfeited
Expired
OUTSTANDING AS OF DECEMBER 31, 2016
Exercisable as of December 31, 2015
Exercisable as of December 31, 2016
72
| GOLDEN STAR RESOURCES The number of options outstanding by strike price as of December 31, 2016 is shown in the following table:
Range of exercise price (Cdn$)
0.30 to 0.50
0.51 to 1.50
1.51 to 2.50
2.51 to 3.50
3.51 to 5.00
Options outstanding
Options exercisable
Number
outstanding at
December 31,
2016
(’000)
Weighted-
average
remaining
contractual life
(years)
Weighted-
average
exercise price
(Cdn$)
Number
outstanding at
December 31,
2016
(’000)
Weighted-
average
exercise price
(Cdn$)
3,096
6,384
4,780
1,434
425
16,119
8.0
7.7
2.6
3.5
2.4
5.7
0.38
0.77
1.84
2.97
3.69
1.29
1,690
3,409
4,780
1,434
425
11,738
0.38
0.86
1.84
2.97
3.69
1.55
The number of options outstanding by strike price as of December 31, 2015 is shown in the following table:
Range of exercise price (Cdn$)
0.30 to 0.50
0.51 to 1.50
1.51 to 2.50
2.51 to 3.50
3.51 to 5.00
Options outstanding
Options exercisable
Number
outstanding at
December 31,
2015
(’000)
Weighted-
average
remaining
contractual life
(years)
Weighted-
average
exercise price
(Cdn$)
Number
outstanding at
December 31,
2015
(’000)
Weighted-
average
exercise price
(Cdn$)
3,369
3,315
4,967
1,788
472
13,911
9.0
7.8
3.5
3.8
3.1
5.9
0.38
0.92
1.85
3.00
3.71
1.48
887
1,936
4,967
1,788
472
10,050
0.39
0.96
1.85
3.00
3.71
1.84
Deferred share units ("DSUs")
On March 9, 2011 the Board adopted a Deferred Share Unit Plan ("DSU Plan") which was subsequently approved by shareholders at the May 2011
annual meeting of shareholders. The DSU Plan provides for the issuance of Deferred Share Units (“DSUs”), each representing the right to receive
one Golden Star common share upon redemption. DSUs may be redeemed only upon termination of the holder's services to the Company, and
may be subject to vesting provisions. DSU awards are granted at the sole discretion of the Company's compensation committee. The DSU Plan
allows directors, at their option, to receive all or any portion of their director retainer by accepting DSUs in lieu of cash.
The compensation committee may also award DSUs to executive officers and/or directors in lieu of cash as a component of their long term
performance compensation, the amount of such awards being in proportion to the officer's or director's achievement of pre-determined
performance goals. As with DSU awards for directors' retainers, DSUs received as performance compensation are redeemable only upon
termination of the holder's services to the Company. The Company may, at its option, provide cash in lieu of common shares upon a holder's
redemption, the cash value being established by the share price on the DSU redemption date, less all applicable tax withholding.
73
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
For the year ended December 31, 2016, the DSUs that were granted vested immediately and a compensation expense of $0.5 million was
recognized for these grants (year ended December 31, 2015 – $0.7 million). As of December 31, 2016, there was no unrecognized compensation
expense related to DSUs granted under the Company's DSU Plan.
A summary of DSU activity during the year ended December 31, 2016 and 2015:
Number of DSUs, beginning of period (’000)
Grants
Exercises
NUMBER OF DSUS, END OF PERIOD (’000)
For the years ended December 31,
2016
4,496
1,277
(40)
5,733
2015
1,962
2,941
(407)
4,496
Share appreciation rights ("SARs")
On February 13, 2012, the Company adopted a Share Appreciation Rights Plan, and granted 1,543,043 share appreciation rights ("SARs") that
vest after a period of three years.
As of December 31, 2016, there was approximately $0.3 million of total unrecognized compensation cost related to unvested SARs (December
31, 2015 – $0.2 million). For the year ended December 31, 2016, the Company recognized an expense of $0.6 million related to these cash settled
awards (year ended December 31, 2015 – $0.0 million).
A summary of the SARs activity during the year ended December 31, 2016 and 2015:
Number of SARs, beginning of period (’000)
Grants
Exercises
Forfeited
Expired
NUMBER OF SARS, END OF PERIOD (’000)
For the years ended December 31,
2016
2,934
1,850
(10)
(678)
(1,409)
2,687
2015
3,220
1,255
—
(1,541)
—
2,934
Performance share units ("PSUs")
On January 1, 2014, the Company adopted a Performance Share Unit (“PSU”) Plan. Each PSU represents one notional common share that is
redeemed for cash based on the value of a common share at the end of the three year performance period, to the extent performance and
vesting criteria have been met. The PSUs vest at the end of a three year performance period based on the Company’s total shareholder return
relative to a performance peer group of gold companies as listed in the PSU Plan. The cash award is determined by multiplying the number of
units by the performance adjustment factor, which range from 0% to 200%. The performance adjustment factor is determined by comparing
the Company's share price performance to the share price performance of a peer group of companies. As the Company is required to settle
these awards in cash, they are accounted for as liability awards with corresponding compensation expense recognized.
Each PSU represents one notional common share that is redeemed for cash based on the value of a common share at the end of the three
year performance period, to the extent performance and vesting criteria have been met. The PSUs vest at the end of a three year performance
period based on the Company’s total shareholder return relative to a performance peer group of gold companies as listed in the PSU Plan.
The cash award is determined by multiplying the number of units by the performance adjustment factor, which range from 0% to 200%.
The performance adjustment factor is determined by comparing the Company's share price performance to the share price performance
of a peer group of companies. For the year ended December 31, 2016, the Company recognized an expense of $12.0 million (year ended
December 31, 2015 – $0.6 million). As at December 31, 2016, the long term PSU liability is $10.5 million, recognized on the balance sheet as
Other Long Term Liability and the current portion of $2.1 million is included in accounts payable and accrued liabilities.
74
| GOLDEN STAR RESOURCES A summary of the PSU activity during the year ended December 31, 2016 and 2015:
Number of PSUs, beginning of period (’000)
Grants
Forfeited
NUMBER OF PSUS, END OF PERIOD (’000)
16. LOSS PER COMMON SHARE
The following table provides reconciliation between basic and diluted loss per common share:
Net loss attributable to Golden Star shareholders
For the years ended December 31,
2016
9,618
6,058
(196)
15,480
2015
2,346
8,010
(738)
9,618
For the years ended December 31,
2016
2015
$
(39,647)
$
(67,681)
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED SHARES (MILLIONS)
294.1
259.7
LOSS PER SHARE ATTRIBUTABLE TO GOLDEN STAR SHAREHOLDERS:
Basic and diluted
$
(0.13)
$
(0.26)
17. REVENUE
Revenue includes the following components:
Revenue – Streaming Agreement
Cash payment proceeds
Deferred revenue recognized
Revenue – Spot sales
TOTAL REVENUE
For the years ended December 31,
2016
2015
$
4,385
11,267
$
2,873
9,621
15,652
205,638
12,494
242,693
$ 221,290
$
255,187
During the year, the Company capitalized $13.6 million of pre-commercial production revenue to construction in progress. These proceeds were
capitalized as they relate to ounces sold from the Wassa Underground which had not reached commercial production at December 31, 2016.
75
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
18. COST OF SALES EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales excluding depreciation and amortization include the following components:
For the years ended December 31,
$
$
2016
32,869
18,378
12,647
44,016
43,404
1,949
6,216
6,505
2015
34,764
36,869
19,161
71,233
43,047
1,991
9,203
7,216
$ 165,984
(71)
(6,569)
1,190
12,082
$ 223,484
14,626
(7,043)
1,524
12,903
$ 172,616
$ 245,494
For the years ended December 31,
$
$
2016
(26)
6,167
(749)
1,368
1,072
2015
(26)
8,344
591
1,761
—
$
7,832
$
10,670
Contractors
Electricity
Fuel
Raw materials and consumables
Salaries and benefits
Transportation costs
General and administrative
Other
Mine operating expenses
Severance charges
Operating costs to metal inventory
Inventory net realizable value adjustment
Royalties
19. FINANCE EXPENSE, NET
Finance income and expense includes the following components:
Interest income
Interest expense, net of capitalized interest (see Note 7)
Net foreign exchange (gain)/loss
Accretion of rehabilitation provision
Conversion make-whole payment
76
| GOLDEN STAR RESOURCES
20. OTHER INCOME
Other income includes the following components:
Gain/(loss) on disposal of assets
Gain on reduction of asset retirement obligations
Gain on deferral of payables (see Note 9)
Other income
For the years ended December 31,
$
2016
(180)
(198)
(2,682)
(289)
$
2015
88
(5,652)
(2,432)
(182)
$
(3,349)
$
(8,178)
21. RELATED PARTY TRANSACTIONS
There were no material related party transactions for the year ended December 31, 2016 and 2015 other than the items disclosed below.
Key management personnel
Key management personnel is defined as members of the Board of Directors and certain senior officers. Compensation of key management
personnel are as follows, with such compensation made on terms equivalent to those prevailing in an arm's length transaction:
Salaries, wages, and other benefits
Bonuses
Share-based compensation
For the years ended December 31,
$
2016
2,337
1,311
9,736
$
2015
2,438
983
593
$
13,384
$
4,014
77
ANNUAL REPORT 2016 |
GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
22. PRINCIPAL SUBSIDIARIES
The consolidated financial statements include the accounts of the Company and all of its subsidiaries at December 31, 2016. The principal
operating subsidiaries are Wassa and Bogoso/Prestea, in which the Company has a 90% ownership interest in each.
Set out below is summarized financial information for each subsidiary that has non-controlling interests that are material to the group.
The amounts are disclosed on a 100% basis and disclosure for each subsidiary are based on those included in the consolidated financial
statements before inter-company eliminations.
Summarized statement of financial position
Wassa
As of December 31,
Bogoso/Prestea
As of December 31,
2016
2015
2016
Non-controlling interest percentage
Current assets
Current liabilities
$
10%
90,627
166,230
$
10%
95,421
121,631
10%
13,957
$
$
1,011,786
2015
10%
9,257
966,036
Non-current assets
Non-current liabilities
Net assets/(liabilities)
(75,603)
(26,210)
(997,829)
(956,779)
125,628
19,513
106,115
30,512
98,581
35,990
62,591
36,381
95,527
81,155
14,372
(983,457)
58,991
70,379
(11,388)
(968,167)
NON-CONTROLLING INTEREST
$
(10,870)
$
(11,457)
$
79,083
$
77,554
Summarized income statement
Wassa
Bogoso/Prestea
For the years ended December 31,
For the years ended December 31,
2016
2015
2016
2015
Revenue
Net loss and comprehensive loss
$ 103,991
$ 116,470
$ 101,648
(5,870)
(3,675)
(15,289)
$ 126,223
(103,613)
Summarized cash flows
Cash flows provided by/(used in) operating activities
Cash flows used in investing activities
Cash flows provided by financing activities
Wassa
Bogoso/Prestea
For the years ended December 31,
For the years ended December 31,
2016
16,757
(42,189)
18,376
2015
8,217
(35,900)
22,091
2016
(43,190)
(43,244)
88,330
2015
(40,647)
(20,597)
53,977
78
| GOLDEN STAR RESOURCES
23. OPERATIONS BY SEGMENT AND GEOGRAPHIC AREA
The Company has reportable segments as identified by the individual mining operations. Segments are operations reviewed by the executive
management. Each segment is identified based on quantitative and qualitative factors.
221,290
165,984
(71)
(6,569)
1,190
12,082
172,616
21,160
27,514
(2,116)
(39,647)
Wassa
Bogoso/
Prestea
Other
Corporate
Total
For the years ended December 31,
2016
Revenue
Mine operating expenses
Severance charges
Operating costs to metal inventory
Inventory net realizable value adjustment
Royalties
Cost of sales excluding depreciation and amortization
Depreciation and amortization
$ 112,341 $ 108,949 $
92,938
113
(5,149)
1,190
6,483
95,575
15,094
73,046
(184)
(1,420)
—
5,599
77,041
6,066
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
Mine operating margin
Net loss attributable to non-controlling interest
Net income/(loss) attributable to Golden Star
1,672
(587)
603 $
25,842
(1,529)
28,687 $
—
—
(6,096)
$
—
—
(62,841)
$
$
Capital expenditures
$
41,805 $
42,413 $
88 $
50 $
84,356
2015
Revenue
Mine operating expenses
Severance charges
Operating costs to metal inventory
Inventory net realizable value adjustment
Royalties
$ 123,189 $
95,152
1,816
(4,886)
1,524
6,234
131,998 $
128,332
12,810
(2,157)
—
6,669
Cost of sales excluding depreciation and amortization
Depreciation and amortization
99,840
14,522
145,654
22,817
Mine operating margin/(loss)
Impairment charges
Net loss attributable to non-controlling interest
Net income/(loss) attributable to Golden Star
8,827
—
(368)
2,427 $
(36,473)
34,396
(10,361)
(54,495)
$
$
—
—
—
—
—
—
—
—
—
—
—
— $ 255,187
223,484
—
14,626
—
(7,043)
—
1,524
—
12,903
—
—
—
—
—
—
(16,299)
$
245,494
37,339
(27,646)
34,396
(10,729)
(67,681)
$
686 $
Capital expenditures
$
33,912 $
23,139 $
— $
— $
57,051
December 31, 2016
Total assets
December 31, 2015
Total assets
Wassa
Bogoso/
Prestea
Other
Corporate
Total
$ 175,738 $ 109,691 $
8,786 $
4,635 $
298,850
$ 149,019 $
68,454 $
21,606 $
(97)
$
238,982
Currently, approximately 90% of our gold production is sold and shipped to a South African gold refinery. Except for the sales to RGLD as part
of the Streaming Agreement, the refinery arranges for sale of the gold on the day it is shipped from the mine sites and we receive payment
for gold sold two working days 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 customer would not materially delay or disrupt revenue.
79
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
24. SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2016 and 2015, there was no payment of income taxes. The Company paid $7.2 million of interest during
the year ended December 31, 2016 (year ended December 31, 2015 – $8.7 million).
Changes in working capital for the year ended December 31, 2016 and 2015 are as follows:
(Increase)/decrease in accounts receivable
Increase in inventories
Decrease/(increase) in prepaids and other
Increase in accounts payable and accrued liabilities
Decrease in current portion of vendor agreement
TOTAL CHANGES IN WORKING CAPITAL
Other includes the following components:
Gain/(loss) on disposal of assets
Net realizable value adjustment on inventory
(Gain)/loss on marketable securities
Gain on deferral of payables (see Note 9)
Accretion of vendor agreement (see Note 9)
Accretion of rehabilitation provisions (see Note 10)
Amortization of financing fees
Amortization of 7% Convertible Debentures discount
Conversion make-whole payment in common shares (see Note 13)
Gain on conversion of 7% Convertible Debentures, net
For the years ended December 31,
$
2016
(2,185)
(9,369)
1,059
1,656
(13,369)
$
2015
9,718
(6,804)
(670)
4,467
—
$
(22,208)
$
6,711
For the years ended December 31,
$
$
2016
(180)
1,190
(69)
(2,682)
2,008
1,368
884
870
885
(48)
2015
88
1,524
56
(2,432)
912
1,761
1,097
—
—
—
$
4,226
$
3,006
25. IMPAIRMENT CHARGES
The following table shows the breakdown of the impairment charges recognized during the year ended December 31, 2016 and 2015:
Mining interests
Materials and supplies inventories
Refractory ore inventory
For the years ended December 31,
2016
—
—
—
2015
8,734
12,887
12,775
$
—
$
34,396
Impairment charges recorded during 2015 totaled $34.4 million and were based on the Company's assessment at June 30, 2015 that forecasted
mine operating loss for the Bogoso refractory operation prior to the planned suspension was an indicator of impairment for the Bogoso
refractory assets.
80
| GOLDEN STAR RESOURCES
Mining Interests
An impairment charge of $8.7 million ($8.7 million, net of tax) was recorded against Bogoso's refractory assets at June 30, 2015. The impairment
charge comprised of $4.2 million related to mine property and $4.5 million related to property, plant and equipment. These impairment charges
represent the excess of carrying values over the total recoverable amount calculated on a value-in-use basis of the Bogoso refractory assets.
The gold price assumption used for the impairment assessment at June 30, 2015 was based on a short-term gold price of $1,150 per ounce.
Projected cash flows were discounted using a weighted average cost of capital which includes estimates for risk-free interest rates, market
return on equity, share volatility, debt-to-equity ratios and risks specific to the CGUs. Management's estimates of the recoverable amounts
were classified as Level 3 in the fair value hierarchy.
Sensitivities
The projected cash flows were significantly affected by changes in assumptions including future capital expenditures and production cost
estimates.
For the impairment charge recorded at June 30, 2015, a 10% change to the gold price assumption would not have had any impact to the
impairment charge recognized on the Bogoso refractory assets.
Inventory write-off
$12.9 million of materials and supplies inventories and $12.8 million of refractory ore inventory at the Bogoso refractory operation were written
off at June 30, 2015 based on a review of the inventory turnover and the expected inventory usage and recovery of ounces in ore prior to the
subsequent suspension of the refractory operation in the third quarter of 2015.
26. FINANCIAL RISK MANAGEMENT
Our exposure to market risk includes, but is not limited to, the following risks: changes in interest rates on our debt, changes in foreign currency
exchange rates and commodity price fluctuations.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering
cash or another financial asset. We manage the liquidity risk inherent in these financial obligations by preparing monthly financial summaries,
quarterly forecasts and annual long-term budgets which forecast cash needs and expected cash availability to meet future obligations.
Typically these obligations are met by cash flows from operations and from cash on hand. Scheduling of capital spending and acquisitions
of financial resources may also be employed, as needed and as available, to meet the cash demands of our obligations.
Our ability to repay or refinance our future obligations depends on a number of factors, some of which may be beyond our control. Factors
that influence our ability to meet these obligations include general global economic conditions, credit and capital market conditions, results
of operations, mineral reserves and resources and the price of gold.
81
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following table shows our contractual obligations as at December 31, 2016:
(Stated in thousands of U.S. dollars)
Accounts payable and accrued liabilities
Debt1
Interest on long term debt
Purchase obligations
Rehabilitation provisions2
Payment due (in thousands) by period
Less than
1 year
1 to 3 years
3 to 5 years
More than
5 years
$
94,973 $
15,695
8,014
14,570
5,515
— $
— $
45,526
12,719
—
19,489
59,999
8,400
—
24,321
— $
—
—
—
35,048
Total
94,973
121,220
29,133
14,570
84,373
TOTAL
$ 138,767 $ 77,734 $
92,720 $
35,048 $ 344,269
1
2
Includes the balance of the 5% Convertible Debentures maturing in June 2017, the 7% Convertible Debentures maturing in August 2021, the loan from RGI, the finance
leases and the vendor agreement. Golden Star has the option to settle the $13.6 million principal amount of the 5% Convertible Debentures in cash or in common shares
at the due date under certain circumstances provided that the aggregate maximum number of common shares to be issued may not exceed 19.99% of the issued and
outstanding common shares as of the closing date. Golden Star may not redeem the 7% Convertible Debentures prior to August 15, 2019, except in the event of certain
changes in applicable tax law. On or after August 15, 2019, the Company may redeem all or part of the outstanding 7% Convertible Debentures at the redemption price,
only if the last reported sales price of the Company's common shares for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day
prior to the date the Company provides the notice of redemption to holders exceeds 130% of the conversion price in effect on each such trading day. The presentation
shown above assumes payment is made in cash and also assumes no conversions of the 5% Convertible Debentures and 7% Convertible Debentures into common
shares by the holders prior to the maturity date.
Rehabilitation provisions indicates the expected undiscounted cash flows for each period.
As at December 31, 2016, the Company has current assets of $77.4 million compared to current liabilities of $137.8 million. As at December 31,
2016, the Company had a cash balance of $21.8 million and on January 3, 2017, the Company received a scheduled $10.0 million payment from
RGLD pursuant to the Streaming Agreement (see Note 11). The Company also received net proceeds of $24.8 million under the completed
bought deal public offering on February 7, 2017 (see Note 28).
The Company expects to meet its short-term financial needs through its cash on hand, cash flow from operations, and further long term
financing as required, including alternative options to facilitate the repayment or refinancing, in whole or in part, of the 5% Convertible
Debentures maturing on June 1, 2017. These alternatives should provide the Company with the flexibility to fund any potential cash flow
shortfall. There can be no assurance however that if additional financing is required it will be available at all or on terms acceptable to
the Company.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our 5%
Convertible Debentures, 7% Convertible Debentures, vendor agreement and the outstanding loans under our equipment financing facility bear
interest at a fixed rate and are not subject to changes in interest payments. The Royal Gold loan has interest calculated based on the average
daily London Bullion Market Association (“LBMA”) gold price multiplied by 62.5% divided by 10,000 to a maximum interest rate of 11.5% per
annum. Based on our current $20.0 million outstanding balance on the Royal Gold loan, a $100 increase in the LBMA gold price would increase
interest charges by $0.1 million on an annual basis. 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.
82
| GOLDEN STAR RESOURCES Foreign currency exchange rate risk
Currency risk is risk that the fair value of future cash flows will fluctuate because of changes in foreign currency exchange rates. In addition,
the value of cash and cash equivalents and other financial assets and liabilities denominated in foreign currencies can fluctuate with changes
in currency exchange rates.
Since our revenues are denominated in U.S. dollars and our operating units transact much of their business in U.S. dollars, we are typically
not subject to significant impacts from currency fluctuations. However, certain purchases of labor, operating supplies and capital assets are
denominated in Ghana cedis, euros, British pounds, Australian dollars, South African rand and Canadian dollars. To accommodate these
purchases, we maintain operating cash accounts in non-US dollar currencies and appreciation of these non-US dollar currencies against the
U.S. dollar results in a foreign currency gain and a decrease in non-U.S. dollar currencies results in a loss. In the past, we have entered into
forward purchase contracts for South African rand, euros and other currencies to hedge expected purchase costs of capital assets. During
2016 and 2015, we had no currency related derivatives. At December 31, 2016 and December 31, 2015, we held $1.8 million and $1.2 million,
respectively, of foreign currency.
Commodity price risk
Gold is our primary product and, as a result, changes in the price of gold can significantly affect our results of operations and cash flows.
Based on our gold production in the year, a $100 per ounce change in gold price would result in approximately a $18.0 million and $17.1 million
change in our sales revenues and operating cash flows, respectively. To reduce gold price volatility, we have at various times entered into gold
price hedges. As at December 31, 2016, the Company does not have any outstanding gold price derivative contracts.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Our credit risk is primarily associated with liquid financial assets and derivatives. We limit exposure to credit risk on liquid financial assets by
holding our cash, cash equivalents, restricted cash and deposits at highly-rated financial institutions. Risks associated with gold trade
receivables is considered minimal as we sell gold to a credit-worthy buyer who settles promptly within two days of receipt of gold bullion.
27. CAPITAL RISK MANAGEMENT
The Company manages its capital in order that it will be able to continue as a going concern while maximizing the return to shareholders
through the optimization of the debt and equity balance.
83
ANNUAL REPORT 2016 | GOLDEN STAR RESOURCES LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
In the management of capital, the Company includes the components of equity, long-term debt, net of cash and cash equivalents,
and investments.
Equity
Long-term debt
Cash and cash equivalents
As of December 31,
2016
2015
$
(120,761)
89,445
$
(131,234)
91,899
$
(31,316)
21,764
$
(39,335)
35,108
$
(9,552)
$
(4,227)
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In doing so, the Company may issue new shares, restructure or issue new debt and acquire or dispose
of assets.
In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary
depending on various factors, including successful capital deployment and general industry conditions. The Company's treasury policy
specifies that cash is to be held in banks with a rating of A or higher by Moody's or Standard & Poor's. In addition, the Company's investment
policy allows investment of surplus funds in permitted investments consisting of US treasury bills, notes and bonds, government sponsored
agency debt obligations, corporate debt or municipal securities with credit rating of at least AA. All investments must have a maximum term
to maturity of one year.
28. SUBSEQUENT EVENTS
On January 3, 2017, the Company received $10.0 million of streaming advance payment from RGLD pursuant to the Streaming Agreement.
(see Note 11)
On January 6, 2017, the Company announced that commercial production has been achieved at its Wassa Underground Gold Mine in Ghana,
effective January 1, 2017.
On February 7, 2017, the Company closed a bought deal of 31,363,950 common shares, which includes shares issued upon full exercise of the
over-allotment option, at a price of C$1.10 per share, for net proceeds to the Company of $24.8 million (the "Offering"). The Offering was led by
Clarus Securities Inc. and included National Bank Financial Inc., BMO Capital Markets, Scotia Capital Inc., and CIBC World Markets Inc. The
Company intends to use the net proceeds from the Offering to fund: 1) exploration projects on the Company's properties 2) capital
expenditures at the Wassa Gold Mine and the Prestea Gold Mine 3) the partial repayment of the Company's 5% Convertible Debentures and 4)
working capital and general corporate purposes.
Subsequent to the year ended December 31, 2016, $7.0 million principal outstanding of the 7% Convertible Debentures were converted to
7,778,889 shares. In total, $12.0 million principal outstanding of the 7% Convertible Debentures has been converted into 13,335,556 common
shares at February 21, 2017. Total principal that remains outstanding on the 7% Convertible Debentures is $53.0 million.
84
| GOLDEN STAR RESOURCES
CORPORATE AND REGISTERED OFFICE
GOLDEN STAR RESOURCES LTD.
150 KING STREET WEST
SUN LIFE FINANCIAL TOWER, SUITE 1200
TORONTO, ONTARIO
CANADA M5H 1J9
T: +1 416 583 3800
GHANA REGIONAL OFFICE
PLOT NO. 16 HOUSE NO. A
NORTEY ABABIO STREET
ROMAN RIDGE, ACCRA
GHANA
P.O. BOX 16075, KIA
ACCRA, GHANA
REGISTRAR AND TRANSFER AGENT
QUESTIONS REGARDING THE CHANGE OF STOCK
OWNERSHIP, CONSOLIDATION OF ACCOUNTS,
LOST CERTIFICATES, CHANGE OF ADDRESS AND
OTHER SUCH MATTERS SHOULD BE DIRECTED TO:
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MONTREAL, QUEBEC
CANADA H3B 3K3
CONTACT DETAILS
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STOCK EXCHANGE LISTINGS
TORONTO STOCK EXCHANGE SYMBOL: GSC
NYSE MKT STOCK EXCHANGE SYMBOL: GSS
GHANA STOCK EXCHANGE SYMBOL: GSR
GHANA COMMERCIAL BANK SHARE REGISTRY
GCB BANK LIMITED
THORPE ROAD
P.O. BOX 134
HEAD OFFICE
ACCRA, GHANA
AUDITORS
PRICEWATERHOUSECOOPERS LLP
Cautionary Note regarding Forward-Looking Information
Some statements contained in this Annual Report are “forward-looking statements” and “forward looking information” within the meaning of
applicable securities laws. Readers are cautioned that forward-looking statements and information are inherently uncertain and involve risks,
assumptions and uncertainties that could cause actual performance, results and achievements to differ materially. There can be no assurance
that future developments affecting Golden Star will be those anticipated by management. Please refer to the discussion in the MD&A under the
heading “Cautionary Note Regarding Forward-Looking Information”. The forecasts contained in this Annual Report constitute management’s
current estimates as of the date hereof with respect to the matters covered thereby. Golden Star expects that these estimates will change as
new information is received. While Golden Star may elect to update these estimates at any time, Golden Star does not undertake to update any
estimate at any particular time or in response to any particular event.
All costs are in U.S. Dollars unless otherwise stated.
www.gsr.com