Update on Golden Star Resources (GSS)

One investor who has had 30+ years in the power generation industry had the following interesting comments about GSS's power shortage situation. I thought it would be worth repeating them here since he has obviously done considerable research about this issue and about GSS in general:

"From what I've found so far, I believe the entire country of Ghana produces 1,650 megawatts of power. 1,100 mw from hydro, the rest from fossil fuels. The fossil plant had to take one of their units down for repairs 2 months ago. I believe it to be a 110mw generator. The unit has been repaired in the U.K., and the Mining Council has air freighted it back to the plant. It is expected to be back in service before November 1st.

The hydro is served by an 8,000 square kilometer reservoir, that operates effectively between water levels of 240'-270'. The water level varies dramatically on a seasonal basis historically, with the low point for the year occurring in August before the rainy season begins. The rains came late this year and the water level fell as low as 237.1'. This caused the generators to produce power less efficiently, and resulted in much lower output. The rains have come, and the water level is back up to 244.4' as of this morning. The level appears to be rising between .15-.20 feet per day.

As a result of the lower total generation from all 3 power plants, industry was forced to cut back usage, and the country is experiencing rolling 12 hour blackouts every 3 days. The authorities are extremely averse to layoffs, and I expect Biox to be allowed to begin operations when the Aboadze fossil unit is back online before months end. Biox may only be allotted a 50-75% power allocation until the production from the hydro plants returns to normal. I expect full power restoration to be completed after the authorities meet on December 1st. GSS will then have all 3 mills running at maximum capacity.

A new fossil power plant is presently under construction, and is expected to be online before June 30, 2007. This will hopefully prevent any recurrence of the problem.

The company has definitely been snake bitten during the past 2 years. Q3 production is estimated at 54,000 ounces, down from the 100,000 level I originally forecast. They've been forced to take out a loan as a result. Once power is fully restored on December 1st, the company should be swimming in money. With the completion of Biox they now have a facility to efficiently process the sulfide ores that represent 70% of their holdings."