Thursday morning news includes Golden Star Resources, Niogold Mining, and Richmont Mines

POSTED ON May 07, 2015 BY James Fraser
CATEGORY Golden Star Resources, Niogold Mining, Stories,

Wassa Main pit (Image: Golden Star Resources)

A look at headlines that caught my attention today and some additional thoughts on each company.

Golden Star Resources - (GSC:TSX) - Golden Star is a company I used to track a few years back but lost interest in due to high costs. This morning GSC announced a significant transaction with Royal Gold (RGL:TSX) completing a $150 million dollar financing. The financing will consist of a $130 million dollar stream and a $20 million dollar loan.

The financing will be used to transform Golden Star from a refractory producer to a non refractory producer. Refractory ore is harder and more expensive to process and the transformation should lead to lower cash costs.

Funds received will facilitate development of Wassa and Prestea underground mines which are expected to be in production by late 2016.

"The Stream and Loan financing with Royal Gold allows Golden Star to execute on its strategy of becoming a low cost, non-refractory gold producer at a whilst reducing the Company's overall cost of capital," said Sam Coetzer, President and CEO of Golden Star.

"The development of the Wassa and Prestea Underground mines will considerably improve Golden Star's mine life with opportunities for further resource conversion and exploration success at both assets. We are encouraged by the vote of confidence in our development projects by Royal Gold and we look forward to a long and supportive relationship."

The deal:

Royal Gold will provide Golden Star with a$130 million advance payment to be used for the development of underground mines and general corporate purposes;
Golden Star will initially deliver 8.5% of all production to RGLD at a cash purchase price of 20% of spot gold until 185,000 ounces have been delivered
- A further 5% of all production at a cash purchase price of 20% of spot gold will be delivered thereafter until an additional 22,500 ounces have been delivered
- Thereafter 3% of all production at a cash purchase price of 30% of spot gold will be delivered
Royal Gold will provide Golden Star a four year $20 million loan at a gold price linked interest rate of 0.625% per $100, being 7.5% at a gold price of $1,200

Q1 Financial results were also released today with production of 63,245 ounces at an all in cash cost of $1239 per ounce. A $13.1 million net loss was the end result.

The deal reminds me a little bit of the transaction between Franco Nevada and Teranga Gold in January 2014. Teranga since has really turned around operations and is generating free cash flow.

I was on the conference call this morning and will be watching to see if Golden Star can turn its operations around. A fair amount of due diligence was completed by Royal Gold which is a big sign of confidence for investors.

Read: Golden Star Announces $150 million Financing from Royal Gold, Inc to advance Wassa and Prestea Underground Mines or Golden Star First Quarter 2015 Financial Results and Project Update

Niogold Mining - (NOX:TSXV) - Niogold continues to hit solid infill drill results at the Marban Block property in Quebec. The Marban deposit is slightly over 2 million ounces in all categories at over 1 gram per tonne. Marban adjoins Agnico Eagle's and Yamana Gold's Canadian Malartic mine.

Drilling highlights from this set of holes include:

40.42 g/t Au over 4.8 m in drill hole MB-15-391 at 110 m vertical depth.
25.05 g/t Au over 1.2 m in drill hole MB-15-393 at 225 m vertical depth.
159.13 g/t Au over 1.0 m in drill hole MB-15-393 at 255 m vertical depth.
5.83 g/t Au over 6.7 m in drill hole MB-15-398 at 120 m vertical depth.
8.51 g/t Au over 9.7 m in drill hole MB-15-406 at 225 m vertical depth.
16.51 g/t Au over 5.2 m in drill hole MB-15-410 at 250 m vertical depth
26.35 g/t Au over 1.2 m in drill hole MB-15-410 at 300 m vertical depth.

Robert Wares, NioGold’s President and CEO, stated: “High-grade intersections that are located outside the modelled pit shell indicate a potential for increasing the in-pit resource within an enlarged shell. Alternatively, we will follow up on these intersections for their underground mining potential, which will require additional targeted drilling.”

Niogold is now 43,000m into the 50,000m drill program with an upgraded resource expected in Q4.

Interesting to note that quite a few of the management team comes from the old Osisko team that sold Canadian Malartic to Agnico and Yamana. The Malban project is located in close proximity to the mine and would be a logical takeover candidate down the road.

Large shareholders include Osisko Royalties (19.5%) and Wexford Capital (17.6%).

Read: NioGold Drills 40.42 g/t Au over 4.8 metres at Marban

Richmont Mines (RIC:TSX) - A very strong quarter out of Richmont Mines posting net earnings of $4.5 million. A terrific job by management is being rewarded in the market as RIC shares are up from $1.40 to close to $4 in the last year.

Hard not to like anything that is going on at Richmont Mines. The company is generating solid free cash flow and has a fantastic balance sheet with $70.7 million in cash and only $5.2 million in long term debt.

Mr. Renaud Adams, President and CEO, commented: "The transition of Island Gold into a higher grade, lower cost mine remains our focus for this year. In this regard we are very pleased with our progress to date, as the implementation of our accelerated development plan came in both on time and on budget for the first three months of 2015. I am also delighted with the continued strong momentum generated by our operations this quarter."

The strong run in the share price can be attributed to operational results but also due to the share structure. Richmont has only 57.9 million shares outstanding which would be among the lowest of any producing gold company.

For more on the importance of share structure see this excellent article here.

Read: Richmont Mines Reports a 23% Increase in Production and a 16% Reduction in Cash Costs in the First Quarter of 2015

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This is not investment advice. All facts are to be checked and verified by reader. As always please do your own due diligence.

James Fraser

Mr. Fraser joined CEO.ca in October 2014. He is passionate about the mining industry. His passion led to co-authoring the e-book "Mining Stocks Investor Guide: A Guide to Investing in Mining Companies." He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not "digging" up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world. More →

Twitter: @miningstocks

james@miningstocksguide.com

James Fraser

Twitter: @miningstocks

james@miningstocksguide.com

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