Here's Why Golden Star Resources Ltd. Regained Its Luster

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What happened

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Shares of Golden Star Resources (NYSEMKT: GSS), a junior mining company with two operating mines in Africa, surged by as much as 10% during Thursday's trading session after the company announced its third-quarter earnings results following the closing bell on Wednesday.

So what

For the quarter, Golden Star Resources reported a 64% year-over-year increase to its gold production to 73,287 ounces. At the same time, as production at the Wassa and Prestea underground mines in Ghana has expanded, costs have declined. The company recognized a 26% decrease in its all-in sustaining costs (AISC) to $848 per gold ounce in Q3 2017, the lowest in the company's history since it began reporting AISC four years ago.

In terms of profits, the company produced net income of $12.1 million, or $0.03 per share, which was a major improvement from the $23.1 million ($0.07 per share) that it lost in the prior-year quarter. Golden Star's quarterly profit wound up coming in ahead of Wall Street's expectation of a $0.02 per share quarterly profit.

The press release also notes that the company remains on track to achieve its full-year production guidance, with costs at the low end of its previously projected range. Margins are also expected to expand with the company's  Prestea and Wassa mines continuing to ramp up.

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Now what

Though Golden Star Resources doesn't get the full benefit of its increased mining capacity due to its $150 million streaming deal with Royal Gold (NASDAQ: RGLD), the increase in production combined with lower costs should be a win-win for both companies.

Golden Star's long-term debt has trended in the right direction since the year began, and improvements in cash flow should allow it the ability to funnel growing operating profits toward paying down its $82.8 million in long-term debt. Meanwhile, lower costs and a healthier balance sheet is a sigh of relief for Royal Gold, which can likely expect Golden Star to meet production delivery goals in the near and intermediate term.

Investors should keep in mind that political risks and higher labor expenses are always issues that could rear their heads with African mining companies, but for the time being Golden Star is looking better than it has in years.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.