The following came from Canaccord on Nov 12, 2012:


Golden Star Resources (GSS : NYSE MKT, GSC : TSX| HOLD, Target US$2.00)

Q3/12 disappoints; improving picture, but not without risks


We maintain our HOLD rating on Golden Star Resources following the release of Q3/12 financial results. Although the company continues making progress in reducing costs and improving efficiencies at its mining and milling facilities, Q3/12 results disappointed due to lower-than-expected gold sales and one-off increases in costs. Golden Star has very good leverage to gold considering high costs and debt outstanding; however, we still see a high degree of execution/operational risk with the assets, as a result of which we remain cautious on the stock.


Investment highlights

Q3/12 adjusted EPS was $0.00, below consensus of $0.04 and our $0.05 estimate. The result was partially due to lower-than-expected gold sales of 80,826 gold ounces sold vs. 83,340 ounces produced, and revenues of $133.5 million vs. our estimate of $137.9 million.


Q3/12 also saw a one-off increase in total cash costs per ounce to $1,074 per ounce vs. our $1,007 estimate, due in part to lower-than-expected grades and recoveries at Bogoso/Prestea as the company processed stockpiled ore. Management expects that processing pit grade ore going forward should increase production and recoveries.


Throughput at the Bogoso/Prestea sulfide mill continued to increase, though the oxide mill was impacted by mechanical issues. At Wassa, cash operating costs declined for the third consecutive quarter, explained largely by improving grades, although we note that the processed grade of 2.31 g/t is well above reserve grade of 1.37 g/t.



Our 12-month target price remains unchanged at US$2.00 per share based on 0.55x our 5%/peak NAVPS estimate of US$3.67 (previously US$3.66).


Investment risks

The typical risks associated with any mining investment include commodity and exchange rate risk, permitting and technical (development/operating) risk. In particular, investors considering an investment in Golden Star should be aware of the risks associated with the Bogoso operation performing up to its stated operating goals and the company's financial and valuation leverage to movements in the gold price.


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