Perseus Mining Ltd

ASX:PRU

Earnings Call Analysis

Perseus Mining's Strong Quarterly Performances

Perseus Mining has delivered strong operational results in the September quarter with gold production at 132,804 ounces, a slight decrease from the prior quarter. Yet, it managed to lower its all-in site costs to USD 937 per ounce, $70 less than before, and achieved a higher average gold sale price of USD 1,936 per ounce. These figures led to a cash margin of USD 999 per ounce, an 8% improvement, and a notional cash flow of USD 132 million. The cash balance at the quarter's end stood at USD 594 million, increasing by USD 72 million since June. Sequentially, Yaoure led with 56% of the total production while Edikan contributed 37%. Sissingue was affected by rainfall but is expected to rebound. Perseus stays on track to meet its half-year guidance with projected production aligning with the intent to fund growth and return capital to shareholders.

Consistent Performance Amidst Challenges

Perseus Mining Limited has demonstrated a resilient quarter despite facing torrential rains in West Africa. The adverse weather particularly affected operations in Sissingue, yet the company's diversified mining portfolio allowed Yaoure and Edikan to compensate for this setback, driving a strong group performance overall. Gold production totaled 132,804 ounces, which although slightly less than the prior quarter, was complemented by a reduced all-in site cost of USD 937 per ounce. This improvement in cost-efficiency entailed an 8% increase in cash margin at USD 999 per ounce, leading to robust cash generation with an ending balance of USD 594 million.

Multiple Mines Bolstering Output

Yaoure emerged as the prime contributor with roughly 56% of the gold production while keeping costs impressively low. This efficiency is under pressure from rising fuel and mining costs, but the site's overall performance continues to exceed expectations. Meanwhile, Edikan maintained strong production figures and cost management. It is noteworthy that both sites demonstrated positive ore reconciliations, a key metric for operational accuracy and efficiency.

Sissingue's Recovery and Expansion Potential

Sissingue's production suffered significantly due to heavy rainfall, but there's a silver lining with extremely positive reconciliation figures at the Fimbiasso West deposit and the potential to extend the life of Sissingue operations beyond fiscal '26. As conditions improve, Perseus expects to recoup the decreased production and remains on track to hit the higher end of its half-year production guidance of 242,500 to 272,500 ounces, at an all-in site cost of $1,080 to $1,190.

Safety and Community Relations

Perseus prioritizes safety and community engagement. The company's safety initiatives, including the SHED program, have yielded a reduction in injury rates. With a workforce comprising 95% local nationals, Perseus continues to make significant contributions to the economies of its host countries and maintain stable community relationships without major events.

Strategic Growth and Exploration

Investments in organic growth, like the expansion of Yaoure mine operations—extending its life by over 12 years to 2035, and the inclusion of the Nkosuo deposit in the Nanankaw mining lease, signal a healthy pipeline for future development. Furthermore, continuous exploration around Yaoure and Sissingue promises to uncover additional resources to support sustained production.

Navigating Geopolitical Hurdles and Inorganic Growth

Perseus is cautiously progressing in Sudan amid local conflict, focusing on securing collaborations with host communities and establishing robust security frameworks that will enable safe drilling activities. The company also eyes inorganic growth opportunities with its substantial financial capacity, emphasizing a careful evaluation approach to ensure profitable investments. Perseus is committed to growing its portfolio through both organic and acquisition-led strategies while maintaining prudent capital management.

Stewardship of Shareholder Value

Perseus stands firm on its track record of delivering on promises and transparently managing its significant cash balance, which includes a war chest for growth and investor returns. The company plans to continue its capital management strategy, offering dividends aligned with its cash position, and diligently seeking value-accretive growth opportunities, ensuring shareholders' investments are not put into ventures with poor returns.

Earnings Call Transcript 2024-Q1

[Nathan Ryan]

Good morning to conference call. [Operator Instructions] I'll now hand over to Perseus Mining CEO and Managing Director, Jeff Quartermaine. Thank you, Jeff.

[Jeffrey Quartermaine, executive]

Thanks, Nathan, and welcome to Perseus' webinar to discuss our September '23 quarterly report. As Nathan said, my name is Jeff Quartermaine, and I am the CEO of Perseus. And as in the past, I'm joined on this call by our CFO, Lee-Anne de Bruin, will both be available to answer questions as needed later in the call.

Today, we are speaking to you from our Perth office rather than on site as we have it in the past. We've recently completed our quarterly review of our operations. So there's no need for us to apologize in advance for any blackouts or communications issues as we sometimes need to do at the start of these calls.

The agenda for today's call is that, firstly, I'll provide an overview of what Perseus has achieved operationally during the September quarter and then follow that up with a Q&A session, in which Lee-Anne and I'll be able to address any questions that you may have regarding the quarterly report or indeed our business in general.

I'll keep my presentation as brief as possible as all the details that you need to understand the Perseus has achieved -- during the quarter are fully documented in the market release that was published earlier this morning. But let me highlight a few key points, if I may, and then let's discuss the detail.

For those of you who are listening to the call on your computer, you should be able to track my comments visually on the presentation on your screens. Before I start, though, with the specific results, I want say that the team has delivered yet another strong performance this quarter, not only in terms of gold production, all-in site costs and cash flow, as you'll hear in a moment, but right across the company.

But what's not necessarily obvious from the results that is the circumstances under which these results have been achieved. This quarter, rainfall in the parts of West Africa, where we operate has been very, very heavy indeed in Sissingue in particular, were 766 millimeters of rain fell during the period. There was quite a bit of disruption given where we're actually mining.

And notwithstanding this, the Yaoure and Edikan operations have not only made up the shortfall from Sissingue, but outperformed their respective internal targets, resulting in a very good group performance, highlighting the benefits of having multiple mines in our portfolio.

And once again, highlighting the resilience and the deductibility of our team that's become quite a hallmark of this company. So without further ado, let's turn to the scoreboard and just see what I'm talking about. So as we move on with that cautionary statements that you're familiar with and look at the -- give an overview of the operating results.

So once again, as we say, Perseus has continued with some market-leading performance. We produced 132,804 ounces of gold this quarter, which was down slightly on the record performance of the previous quarter. Our all-in site costs at USD 937 per ounce was about $70 an ounce lower than the last quarter.

Our average gold sale price achieved was $1,936 an ounce, slightly up on June, which gave us a cash margin of USD 999 per ounce, which was 8% higher than previously. This translated into cash flow -- notional cash flow of USD 132 million for the quarter, which was slightly up on the previous period and resulted in us having a cash and bullion balance at the end of the quarter of USD 594 million, which was $72 million more than the position as at the end of June.

So in summary, Perseus is very well positioned to achieve our guidance for the half year and very firmly on track to fund future growth and to continue capital returns to our shareholders. Now if we run through each of the mines fairly quickly to see where these results come from. Yaoure was the major contributor, producing about 56% of our total production of about nearly 74,000 ounces.

Production costs were at $568 an ounce or all-in site cost USD 77 per ounce very, very low in global terms. But going forward, we are likely to see some upward pressure on the all-in site costs due to increased fuel and mining costs that we expect to see in the current quarter. Our 65,000 ounces of gold sold, and the average price for Yaoure was $1,949 an ounce, which gave a cash margin of USD 1,272 per ounce, which is fairly outstanding, all things considered.

In terms of the reconciliation between our block model and mill for the last 3 months, it was about 20% positive on tonnes, 8% negative on grade, giving an overall 10% positive on contained ounces. And that's within market -- within industry standards. I mean certainly reflects the MIK modeling that we -- technique that we use.

During the quarter, we did update details of our mineral resource and reserve estimate for the mine and produced a feasibility study on the CMA underground operation, and that was released to the market in August and then we updated our Life of Mine plan for the entire operation later on in September.

So Yaoure has had a very good quarter indeed. Looking at Edikan. Edikan has also had an excellent quarter, and it did about 37% of our total production, nearly 48,500 ounces of gold produced there and all-in site costs did touch over USD 1,000 an ounce, which is an exceptionally good performance at Edikan and certainly better than what we saw from the mine several years ago.

Our sales were done at an average price of $1,910 an ounce and the average margin achieved there was USD 832 an ounce. Now this was a really very good result actually. The rainfall at Edikan during the quarter was about 501 millimeters. Most of which fell during the month of July, which set us back a little, but we were able to reset plants and then to outperform for the last 2 months of the quarter.

Now the reconciliation between block model and mill at Edikan has been very, very good as well over the last 3 months, 3% negative on tonnes, but 23% positive on grade giving a total of 18% positive on contained ounces. Now that is a little higher than you'd be totally comfortable with, although high is good, obviously. But we'll keep a close eye on things as we go forward.

And if this trend is sustained, then we may need to take a look at our model more closely. One thing post the end of the quarter, I think an important milestone was achieved and that was when a moratorium was declared over the [indiscernible] area for the Nkosuo deposit. This is a discovery that we've made just north of the of the Edikan mill, that was declared on the 19th of October.

And what it means is that we can now commence outstanding actions to bring that deposit into the mine plan, and we're expecting that all preparations will be complete, and we'll be able to start mining at Nkosuo in May next year.

Sissingue, as I said, was severely impacted by rain during the quarter, 766 millimeters of rain fell there and more than half of that was in the month of August. So it really did play havoc with our production. The total production for the month was only 10,570 ounces of gold representing about 8% of our production.

The costs were very high compared to historical performance at Sissingue and then that was a direct result of the lower ounces of gold that were produced. And also during the period, our sales were down somewhat each of the sales were done at $1,974 an ounce. But the sales in total were down impacted by the timing of gold shipments in part as a result of weather as well.

We did make a modest loss, unfortunately, at Sissingue this month. But the good news is that the shortfall in production and earnings that were occurred in Q1 are expected to be recovered in the current quarter as the weather has abated. And we believe that overall production will be in line with our market guidance range of 27,500 to 32,500 for the half year with all in cut site costs also in the guidance range of $1,700 to $1,900 an ounce.

So we do expect that there will be a sharp turnaround in this quarter. And already, we've seen that in the month of October as the [Technical Difficulty] has been drying out. Now 1 of the things that has been quite notable during the quarter is that we've got very, very positive reconciliation between the block model and mill in the last 3 months, particularly in the Fimbiasso West deposit.

Now we had 98% positive on tonnes, 15% positive on grade. So an overall 127% positive on contained ounces. Now what this is all about is that what this additional production has come about from is from grade control drilling, which is very much more closely spaced than the wide space drilling that was used to calculate or to estimate the block model.

And it's quite apparent that in fact, there is a lot more mineralization in the Fimbiasso deposit than we originally envisaged, and recent investigation indicates that this strong negative in the upper benches is not something that's going to change going forward. And in fact, we have noticed that, in fact, it continues at depth and it's going to necessitate a reassessment of the pit and potentially a very strong potential exists for us to incrementally extend the life of the -- of that particular pit and the overall Sissingue operation well beyond the current fiscal '26 as currently estimated.

So widely production has been disappointing at Sissingue during the quarter. It's not all bad news, certainly looking forward there. Now in terms of production, we forecast -- we've guided the market to a total of 242,500 to 272,500 ounces for that period. All-in site cost $1,080 to $1,190.

Now where we sit, I think that data up to the 20th of October we're well and truly towards the upper end of that production range and our costs, as you heard, at the end of the September quarter were well below the bottom end of that cost range. Now we will see a slight increase in costs in this next quarter. But certainly, we're going to, we believe, finish the quarter very strongly relative to that guidance range that has already been in the market.

So clearly, there's no change to the guidance that we have given to the market. Now pleasingly, this reduction that's been revealed here has been done in a very sustainable -- safe and sustainable manner. We have clear evidence that our Safely Home Every Day, our SHED program, which is a safety program that's been implemented across all sites in conjunction with a fatal risk management exercises having benefits somewhere starting to see a decrease in the total recordable injury frequency rate, the TRIFR, relative to the previous quarter.

So safety is an absolute priority right across all 3 sites. And certainly, the investment that we're making in those programs is resonating very well with our staff and having the desired effect. Our work with our host communities is continuing. We're continuing to make a major contribution to the economies of all of our host countries and to be employing large numbers of local and national people.

So something like 95% of our workforce across the company is -- comes from the local host countries, which is clearly very beneficial for those economies and for the people themselves. And I'm very pleased to say that during the period, we've had no significant community events. So our relationship, our license to operate is sound. And environmentally, we continue to to work in a responsible manner.

We've got a very minor increase in Scope 1 and 2 greenhouse gas emissions. But that's more of a rounding error than anything. But we certainly had no significant environmental or tailing stand issues, and we're managing that part of the business very well.

Now I mentioned growth before, and that's certainly a question that comes into mind when looking at the company and looking at the size of the balance sheet that we have. We're certainly very engaged in the organic growth side of things. And as I've already said, we've put out some releases during the quarter about the development of the underground operation at our Yaoure mine in the process of coming up with that we've extended the life of the mine by 12-plus years to 2035.

Now we fully expect it to go well beyond that as we continue drilling down dip. But certainly, there's been a marked increase in the resources and the reserves around Edikan, around Yaoure, and that operation, the life of that has been well established. So that's been a strong plus in the organic side of things.

Certainly, the exploration has been encouraging. I mentioned the Nkosuo deposit that we've picked up. We've been able to incorporate quite a bit of that lease that exploration license into -- where that host Nkosuo deposit into the Nanankaw mining lease, and we'll be moving forward on that. But as to the remainder of the Agyakusu lease itself exploration license and the DML Agyakusu license and Domenase.

There are a number of targets on there that we're pursuing, and we have every confidence that we're going to come up with some further deposits before too much longer as well. So that's looking quite encouraging. Else in Cote d'Ivoire, the -- most of the exploration activities are focused around Yaoure. Certainly looking at that Northern front on the CMA underground structure, and that's starting to show some pretty interesting numbers coming through as well.

And as I said earlier on, we do expect that while we've identified 12.5 years there for the moment, that will get a lot larger as we go forward. We've also run a couple of programs up around Sissingue and identified mineralization that was previously not identified and that needs further infill drilling.

But we're very confident that those structures will deliver additional tonnes of ore to go through the mill. Now they won't be at the same grade as what we used to mine at Sissingue, but they'll be profitable ounces, and will add to the life of Sissingue going forward, which is encouraging.

And of course, in Sudan, there's a limited field activity as we have been reestablishing ourselves in country putting in place security arrangements, which I'll refer to in just a moment, speaking of it. So people are well aware that conflict has been taking place in Sudan since April, which necessitated us to pull back from the country and definitely pull back from our potential decision to move into development mode there as we were planning to do.

So what we've basically done is pulled back. Although we have recently gone back to the country, and we're establishing our security structures with the aim of -- as soon as they are in place and to our satisfaction to recommence drilling on that site and to just continue to expand the mineral resource and ore reserve until such time as we get comfortable with the country. Now when that might be, it's very difficult to say because there's no clear path to resolution of the dispute.

But nevertheless, drilling activities will be conducted and they'll be conducting in a safe manner and none of our people will be put at risk. So that is for the future. In the meantime, we've been working with our host communities, in particularly Ababda community. We've signed the first of our consultative committee framework agreements there.

So we're working with that group and they're, in fact, participating in the security arrangements that we're putting in place. So Sudan moving ahead, but albeit at a very different pace than what we contemplated several quarters ago.

And the other subject, of course, is inorganic growth. And we've made it quite clear that in the short term, we're very, very focused on continuing to produce over 0.5 million ounces a year, which we are comfortably doing. But longer term, we're committed to increase the size of our portfolio and to upgrade its size, quality and geographic distribution.

I've mentioned the organic activities that we're pursuing. But in addition to that, we believe that there is very strong growth opportunity through inorganic means as well. We do have a very significant financial capacity, approximately USD 900 million. When you add together our cash balance plus the undrawn line of debt of $300 million that we have and we have the human capacity to engage in these activities and to deliver very decent economic returns for our company, provided, of course, that we can strike an acceptable balance of risk and return, which is very, very key in terms of investing on the African continent.

Now we do maintain a very, very active watching brief for opportunities. We do evaluate lots and lots of opportunities, including both predevelopment projects and existing production. I can say quite currently that identifying opportunities is far more easy to do than identifying economically profitable opportunities.

But nevertheless, we do look very closely and I'm very sure that we fought too much long that we will be in a position to expand our portfolio through inorganic means. Now before I do conclude, let me just say -- repeat the point that I made at the start of the call, Perseus has had a another very good quarter on all fronts, including gold production, all-in site cost, cash margin and cash flow generation and indeed, business development.

And pleasingly, this work has been conducted in a safe and sustainable manner in line with our targeted standards. We have delivered gold production and all-in site costs that have firmly put us on track to comfortably achieve our December half year market guidance. And then keep intact our record of doing what we say we're going to do something that is key to the ethics of this particular company.

Our all-in site costs continue to be very competitive in global terms, and we're managing our business successfully in tough economic and geopolitical times. And on this score, I do repeat that the battle to contain our cost base at the current very low levels is challenging. And we expect that in coming periods, there will be some increases in all-in site costs.

But in saying that, we do still expect to perform very well relative to our market guidance and continue to outperform most of our peers. One thing I'd just say having since the last webinar, I've met with a lot of our investors, and there are a couple of points that they have raised repeatedly with me that I should mention on this call.

Now 1 of those is the size of our significant cash balance and what we plan to do with this. I've already made reference to that. And I repeat the point, we do intend to continue to grow our company as and when value-accretive opportunities arise. And when that occurs, we won't hesitate to deploy capital accordingly.

In addition, in the immediate future, we will continue with our existing capital management strategy of declaring a base dividend, supplemented by a bonus dividend or potential share buyback or capital return depending on the level of excess cash available when that dividend is declared. But that is certainly part of our business and will continue into the future.

Under no circumstances at least well, Lee-Anne and I at the helm of Perseus, -- we'll be -- we're wasting our shareholders hard earned money on poor investments. And of that, you can be absolutely sure. I know that, that is something that some investors are concerned about that we will feel compelled to spend when it's -- even if the opportunities aren't right. I can assure you that will not happen.

The second question that's been raised by many investors relates to the geopolitical risk associated with our business, given the stream of negative publicity arising from a series of [indiscernible] in various parts of sub-Sahel region of Africa where we do not operate, I should say.

As you know, Perseus operating mines are located in Ghana and Cote d'Ivoire, arguably the most stable jurisdictions in West Africa. Now unlike the neighbors of Mali, Burkina Faso and Guinea, the politics of Ghana and CDI, Cote d'Ivoire, are relatively stable. It's not to say that Ghana does not have economic challenges at the current time nor to deny that Cote d'Ivoire experienced a civil war over a decade ago.

But in current day terms, by comparison to other jurisdictions, Cote d'Ivoire and Ghana are by far the most stable and preferred investment destinations in the region. The point of this is that Perseus has deliberately established a geopolitically diversified asset portfolio to accommodate these political cycles of its host countries.

And the inherent level of geopolitical risk associated with Perseus is significantly lower than that of its peers who offer either single country exposure or exposure to some very high-risk jurisdictions in Sahel Africa. Now as a consequence of that, I'm going to argue that the discount that the market applause Perseus attributed to its African exposure is significantly mispriced.

We in itself creates an opportunity for a sturdy investors. Finally, in conclusion, I want to acknowledge, as I have done in the past, the contribution that's been made to the success of Perseus over many years, but in particular, the last 3 months by all of the men and women who work for Perseus in the 4 countries in which we operate, making up both our management and operating teams.

You continue to do an outstanding job, and I sincerely thank you all on behalf of shareholders for your great efforts and continuing to deliver on our promises. And I know that quite a number of our people would be on this call today. So thank you very much, everyone, for your attention. This brings my presentation to a close. Now Lee-Anne, and I are happy to take any questions that you may have. Over to you.

[Nathan Ryan]

Thanks, Jeff. [Operator Instructions] Your first question comes from Reg Spencer at Canaccord.

[Reg Spencer, analyst]

Jeff, congratulations on a very good quarter. Maybe just an observational question on the macro. A couple of quarters ago, we started to see some evidence of some cost inflation. How is that tracking from what you guys can see on the ground? Labor rates, fuel, et cetera, et cetera.

[Jeffrey Quartermaine, executive]

Okay. Labor rates, for instance, they're in line with what we would see everywhere. In fact if anything, they're possibly arguably, slightly lower than you would see in Australia. Fuel has been interesting because up until very recently, we experienced some inflation in fuel in Ghana, but the fuel price in Cote d'Ivoire was controlled by the government.

But I think that control has come off during the course of this month actually. And we have seen an increase in fuel costs which will flow through to the bottom line. I think where we are also likely to see some costs is in our mining costs, where our contractors are exposed to normal inflationary processes through on tires, spare parts, et cetera, et cetera. So there will be some increases on there.

But generally speaking, we're not seeing massive cost inflation. We do work very hard at keeping them under control. We have continuous improvement programs running in all 3 sites where we look for opportunities to take costs out of our business. Now obviously, as you continue to do that, it becomes more challenging to find new areas to reduce your cost base, but that's the challenge for us. And that's a challenge that's very happily accepted by our team.

[Reg Spencer, analyst]

Excellent. Jeff, you mentioned before capital management and how that might sit relative to your desire and need to look at further external growth opportunities. Is that a timing issue? Like if you can't find good enough asset in, say, 2 years or 3 years because if we look at our own forecast on cash flow, you might have as much cash equal to our market cap in about 3 years' time.

[Jeffrey Quartermaine, executive]

We like our market cap to go up, if you don't mind. Thank you, very much.

[Reg Spencer, analyst]

Well, let's -- okay. But is there a time limit that you would want to see before you would look at a buyback or a major special dividend or huge capital return to shareholders? Or that's just going to be an ongoing process and you're going to continue to preserve that cash until such opportunity presents itself?

[Jeffrey Quartermaine, executive]

Well, look, every 6 months when we declare our financial results we look at this particular question and reexamine the situation on its merits. I mean -- and what gets taken into account is the opportunities that sit before us and how likely they are to be realized.

I mean we don't want to leave ourselves in a position where we can't achieve our growth targets because we've given all the money back to shareholders. But having said that, we also don't want money sitting there on the balance sheet, doing nothing indifferently. So look, it's going to be a situation that we evaluate on a regular basis. And I think shareholders can trust us to make appropriate decisions when the time comes.

[Reg Spencer, analyst]

Your next question comes from Alex at Citi Bank.

[Unknown Analyst]

Jeff, if I look at the group exploration spend stripping out Meyas Sand, September quarter looks like 1 of the lightest quarters for some time. Is this a function of weather over the quarter for the expo -- sorry, go ahead.

[Jeffrey Quartermaine, executive]

Yes, it is. It was very wet. You can't get out in about -- into the field when things are saturated out that. So there wasn't a huge amount of field work during the quarter.

[Unknown Analyst]

Okay. And in terms of the exploration programs that you outlined, is there any particular program that you think is more promising in terms of ounces growth?

[Jeffrey Quartermaine, executive]

We'd like to think that they're all promising the trend. But look, I mean, I think we do expect to see some good outcomes in Edikan from those programs there. And of course, the work around Yaoure is very distinct actually, that is adding ounces. Now -- that will sort of slow up a little at Yaoure until we get underground, and then we'll be drilling from the underground platform rather than from surface.

So there will be a slight hiatus at Yaoure in terms of adding ounces. But -- we do expect that once we get underground and can do exploration more cost effectively, then we will see those ounces come back. So Sissingue it's interesting on the I don't think we're going to turn Sissingue into a Tier 1 or even a Tier 2 asset. But we do see opportunity there to add several more years to the mine life. It won't be massively low-grade ounces -- sorry, high-grade ounces, we don't think, based on what we can see.

But certainly, what we've done at Sissingue is agreed amongst ourselves that we're targeting to extend the mine life to 5 years from now just as an Edikan internally, while I was saying last week -- we agreed that the target we would set ourselves was to increase the life of mine by 10 years. So we do have these internal targets that we're going to pursue.

And we wouldn't establish those targets if we didn't think we could achieve them. Now it remains -- the work remains to be done, and it may prove that, that's beyond us. But we are optimistic right across the board that we will deliver those outcomes. Now the other thing I should say is that we're also looking at bringing in some greenfield opportunities into the business as well and starting to take a longer-term view around organic growth in areas away from existing infrastructure.

Now we'll need to await the completion of some of those things before we can talk publicly. But certainly, we have some very interesting opportunities ahead of us. to expand our footprint in an exploration sense more broadly across the African continent. But this is 1 of these things that we'll announce in due course.

[Nathan Ryan]

There are no further questions at this time. So I'll hand back to Jeff for closing remarks.

[Jeffrey Quartermaine, executive]

Okay. Well, and Lee-Anne very grateful that she got off lightly today. But nevertheless, thanks very much for your attention, everybody. and we look forward to bringing you further good news as the year unfolds. Thank you.