Thursday, 8 October 2020

Bogoso-Prestea Gold Mines sold to FGR in a ‘bizarre’ transaction arrangement


 Adnan Adams Mohammed

 

The Bogoso-Prestea Gold Mine, a subsidiary of Golden Star Resources, which has now been transferred to Future Global Resources Limited (FGR), at an initial US$5.0 million cash consideration, has been deferred by up to six months to March 30, 2021 pending finalization of FGR's reclamation bonding process, as described below.

 

The total transaction value is US$98 million for the 90 percent shares of the company. The remaining US$93 million is to be paid over a 3-year period during their operation, this they are working to raise the balance to pay up. Government holds 10% shares in the company, this experts say Ghana could lose revenue in taxes and dividends.

 

The intriguing and bizarre news of the transaction is that, Future Global Resources Limited (FGR), which is an inexperienced newly incorporated company and without listing experience on any stock exchange, is not paying the US$5.0 million upfront, but rather a deferred payment sales, and this has not sit well with some tax and extractive industry experts. Further information gathered reveals that, mining giants with remarkable track record in the industry such as Newmont and Goldfields Ghana have showed interest in buying the said mines a couple of years ago but were denied.

 

“Golden Star Resources Ltd. (NYSE American: GSS) (TSX: GSC) GSE: GSR) ("Golden Star" or the "Company") is pleased to announce that it has completed the sale of its 90% interest in the Bogoso-Prestea Gold Mine ("Bogoso-Prestea") in Ghana to Future Global Resources Limited ("FGR"). All references herein to "$" are to United States dollars”, the Canada based company announced last week in a release on the very day the transaction took effect.

 

The subsequent staged payments, totaling US$25 million, and contingent payments of US$20 to US$40 million ensure that FGR is able to focus its investment capacity on the business whilst providing Golden Star with exposure to Bogoso-Prestea's long-term growth potential

 

The sale strengthens Golden Star's balance sheet and allows the Company to accelerate the growth and development of the large resource base at the Wassa mine, and increase exploration activities in the wider Wassa-HBB project area

 

Andrew Wray, President and Chief Executive Officer of Golden Star, who signed the press release noted that; "We are pleased to complete the previously announced sale of Bogoso-Prestea. This transaction is transformational for Golden Star's balance sheet and allows us to focus fully on further developing Wassa and realizing its potential. We are now able to concentrate our financial and technical resources on accelerating the delivery of value from Wassa as it continues to develop into a large-scale, long-life and cash generative underground mine. We now look forward to completing a Preliminary Economic Assessment on the development options for the ore body by the end of the year. In doing so we can subsequently provide the market with greater clarity around the potential path and timing for future growth at the asset.

 

“The sale strengthens our balance sheet by providing a cash inflow of $30 million by 2023 and removing negative working capital and liabilities from our balance sheet. Given the resulting improvement in the financial position of the Company, we expect to now be able to accelerate our investment at Wassa and within our existing exploration pipeline and look for other opportunities to further expand our business.

 

“Bogoso-Prestea will also benefit from having an owner solely focused on delivering the turnaround of the underground operation and assessing the significant potential of the sulfide resources. As a result, we see this transaction as positive for both FGR and Golden Star, our respective employees, Ghana, the host communities and all of our other stakeholders." 

 

Following further commercial discussions, Golden Star and FGR agreed to amend the commercial terms of the sale of Bogoso-Prestea. The consideration remains unchanged with FGR taking on all the assets and liabilities of the Bogoso-Prestea subsidiaries at closing. The cash consideration is now all deferred and will be paid as follows:

$5 million of cash is payable on the earlier of (i) the date at which FGR puts in place a new reclamation bond with the Environmental Protection Agency, or (ii) March 30, 2021; $10 million of cash is payable on July 31, 2021; and $15 million of cash is payable on July 31, 2023.

 

In addition to the consideration payable at closing and the deferred payments, a contingent payment of up to $40 million conditional upon the occurrence of the milestones described hereinafter in respect of the development of the Bogoso Sulfide Project (the "Contingent Payment") may become payable by FGR to Golden Star.  The trigger point for the Contingent Payment is either (i) FGR's formal decision to proceed ("Decision to Proceed") with the Bogoso Sulfide Project, or (ii) the extraction of an aggregate of 5% of the sulfide resources as stated at the end of 2019, being 1.76 million ounces of measured and indicated resources and 0.07 million ounces of inferred resource. The quantum of the Contingent Payment is determined by reference to the average spot gold price for the 90 day period preceding the date of the Decision to Proceed: $20 million, if the average spot gold price is less than or equal to $1,400/oz; $30 million, if the average spot gold price is greater than $1,400/oz but less than or equal to $1,700/oz; or $40 million, if the average spot gold price is greater than $1,700/oz

 

The Contingent Payment is payable in two tranches:

50% at the time of (i) the Decision to Proceed, or (ii) declaration that 5% of the sulfide mineral resources have been extracted; and 50% at the time of the first anniversary of (i) achieving commercial production following the Decision to Proceed, or (ii) the first anniversary of the declaration that 5% of the sulfide mineral resources have been extracted.

 

Restructuring of RGLD Gold AG streaming agreement

Also, Caystar Finance Co. (a wholly-owned subsidiary of Golden Star) and RGLD Gold AG (an affiliate of Royal Gold, Inc.) have restructured the streaming agreement covering the Wassa mine and Bogoso-Prestea.  The stream has been restructured to separate Bogoso-Prestea from the current arrangement. Wassa now retains the remaining Tier One streaming obligation, which relates to the delivery of gold at a rate of 10.5% of production for a 20% delivery payment. As at June 30, 2020, there were c.129.5koz Tier One ounces remaining to deliver. Following the delivery of the remaining Tier One obligation, the streaming obligation at Wassa will transition into the Tier Two structure, which delivers 5.5% of gold production for a 30% delivery payment.

 

The Company's 2020 production and cost guidance is expected to be updated for the sale of Bogoso-Prestea as part of the reporting of the Q3 2020 results on October 28, 2020.

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