You Might Want to Avoid This Gold Stock

Golden Star Resources [stock_market_widget type="inline" template="generic" color="default" assets="GSS.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] is having a difficult time on the stock market this year despite the impressive rally in gold prices. In fact, shares of the company have lost value in 2019, which is quite uncharacteristic of a gold miner in light of the yellow metal’s rising price.

It is not surprising to see why Golden Star stock has taken a pounding in 2019. The company’s results have not been all that great.

Golden Star Is Not in Great Health

Golden Star Resources’ second-quarter 2019 gold production plunged 21% year over year to 48,422 ounces. What’s more, the company’s average realized price of gold also fell slightly to $1,270 an ounce as compared to $1,273 an ounce a year ago.

A combination of lower production and weak pricing meant that the company’s gold revenue for the quarter fell to $61.9 million from $77.1 million a year ago. The lower production also meant that Golden Star witnessed an increase in its cost profile. The company’s cash operating cost per ounce increased from $809 a year ago to $886 last quarter.

Moreover, all-in sustaining costs increased to $1,212 an ounce from $1,100 an ounce a year ago. As such, it was not surprising to see that Golden Star’s adjusted net income fell year over year.

This weak operational performance means that Golden Star is in no position to take advantage of an increase in gold prices.

The Outlook Gets Worse

What increased Golden Star’s problems last quarter was that the company reduced its annual production guidance to a range of 190,000 ounces to 205,000 ounces. The company was earlier anticipating 220,000 ounces to 240,000 ounces of revenue, which means that it has reduced its output by around 14% at the mid-point of its guidance range.

Golden Star has also increased its cost guidance by a big margin. It expects cash operating costs between $800 and $850 an ounce as compared to the earlier guidance range of $620 to $680 an ounce. The guidance for all-in sustaining costs has increased from the earlier range of $875 to $955 an ounce to $1,100-$1,200 an ounce currently.

The updated guidance makes it clear Golden Star Resources is a stock that isn’t primed to take advantage of an increase in gold prices, at least for now. The company has given investors some hope by stating that it has found substantial gold minerals at the Wassa underground mine in Ghana, but that isn’t going to have a positive impact on its financial performance as the guidance indicates.

So it would be a good idea for investors to look elsewhere as Golden Star Resources stock will continue to remain under pressure despite the gold price rally.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


Please enter your comment!
Please enter your name here