Perseus Mining Ltd

ASX:PRU

Earnings Call Transcript 2024-Q3

[Jeffrey Quartermaine, executive]

Well, the pleasing things about our March quarter is the consistency of our operating performance that underpins everything that we seek to do here at Perseus. Now this quarter, we produced, on average, 1,416 ounces of gold per day every day during the quarter compared to 1,415 ounces per day in the December quarter. The contributions from each of the 3 mines was also very similar quarter-on-quarter with Yaoure contributing about 48% of production, Edikan 39%, and Sissingue 13%. That's not to say that we didn't face challenges from time to time. We certainly did and do. But our team finds a way to deliver. And once again this quarter, they've done this very, very well.

So notwithstanding the ups and downs of mining, I mean, after the first 3 months and indeed actually just about the first 4 months of the 6-month period for which we've provided market guidance on cost and production, we are once again well on track to comfortably achieve or possibly exceed -- in the case of production, we'll come in underneath; in the case of costs, the guidance that we've given to the market for the 6-month period to June 30. So in other words, we're just simply continuing to do what we promised to do month in, month out, in line with our core value of achievement.

So without further ado, let's look at the scoreboard and just see exactly what I'm talking about. So let me just move that on. Okay. In terms of our operating and financial results. So for the quarter, another strong performance, 127,471 ounces were produced for the quarter at an all-in site cost of $1,091 an ounce. That's up a little on our previous quarter for the reasons that we articulated last quarter, and I'll come back to this in just a moment.

The average sale price was $2,025 an ounce, which is clearly up on the previous quarter, giving a cash margin of USD 934 per ounce, and generating a notional cash flow of near enough to USD 220 million for the quarter. Now at the end of the period, we had USD 702 million of net cash and bullion in our bank. And of course, no debt, $300 million of undrawn credit available to near enough to USD 1 billion available to continue to fund the growth of the company and continue to return capital to shareholders.

Now also, as I said, all 3 mines are performing well, consistently achieving or exceeding targets. The March quarter was no exception. And you can see from that chart that over a period now of extending from early 2020, we've had a case of rising production in a period where the gold price has been rising, our costs have been relatively flat. And so we've been progressively increasing the margin and happily being able to sell more gold into that rising market, which is, of course, the strong generation of cash.

Now look, I'm running through the 3 mines. 61,283 ounces of gold from Yaoure. Yaoure is clearly our major contributor. The production cost was $874 per ounce, all-in site cost of $1,025. Now we did predict last quarter that we would have a slight increase in all-in site costs at Yaoure this quarter and next quarter, in fact, as we work to recover from a period of time where we enjoyed very wet conditions and also some struggles with our mining contractor.

Now we are progressively making inroads into that. I must say that our mine contractor took exception to me publicly commenting on their performance last quarter, but the fact is that I wouldn't be committing if they're hitting the target. So nevermind, we're pushing through that, and we're getting back on track.

The cash margin of $984 per ounce, generating $60-odd million for the quarter, is very healthy. And I think it is pleasing is that on a reconciliation basis, the ore body is performing pretty well. I mean, in fact, actually, it's positive 15% in terms of contained ounces, a lot more tonnes than we were expecting and slightly down on grade.

In terms of Edikan. Edikan has been a terrific performer yet again, near enough to 50,000 ounces, that's 49,096 ounces for the quarter, performing very, very well right across the board. All of the metrics are pretty much in line with where we were hoping to be. And at an all-in site cost of $982 per ounce. So Edikan, the mine that was not particularly well regulated by many early in the piece, is really performing very well. And full credit to the team at Edikan for delivering that performance.

Once again, notional cash margin of USD 1,054 an ounce, so generating $50-odd million of free cash from the operations this quarter.

And similar to Yaoure, the reconciliation of the Block model to the mill is pretty even on tonnes, 12% positive on grade. So up about 12% in terms of contained ounces. So that's pretty pleasing as well.

Sissingue has also been moving along fairly well. After a fairly disastrous [ wet ] season last year, We've made some pretty strong inroads into turning the performance around at casing. And we're starting to see some reasonable results coming through related relative to where we would like them to be, but there's a clear understanding of what of what that's about. And as I say, the inroads, the performance of our contract there is very strong, and we're in much better shape to face the next wet season when it comes around. Still the reconciliation to Block model is very strong, up 27% in terms of contained ounces. And we have been drilling around the -- around both Sissingue and the Fimbiasso pits, and we were getting some pretty strong results from that, which looks like we should be able to extend the life of the Sissingue operation by a couple of years, but we will be saying more about that in due course as a full set of results come to hand.

So the 3 operations are running very strongly, and that's put us into a position where, in terms of our half year guidance of 226,000 to 254,000 ounces, we're really well positioned. And similarly on the cost side. In fact, if we achieve our budgets for the next 2 months, we should be right at the top end of that range, if not a little over and under the bottom end of that cost range. So once again, pushing along very nicely relative to the targets that we've set.

In terms of our financial position, as I said, USD 702 million on the balance sheet at the end of March, 0 debt with a USD 300 million undrawn line of credit. And that is -- that has been accumulated after paying taxes, paying dividends to shareholders and generally contributing to our host communities and host government. So that's a fairly incredible performance, I think, and certainly puts Perseus in a very strong position to look to the future.

Now the thing about it is that we are doing -- we are working in a very safe and constructive manner. Our safety stats are pretty well static on where they were previously. So we've been working very hard on our safety programs. We have a program called the SHED program, just safety home every day, which keeps people very focused on the safety. And we also have a fatality risk management program, working with our -- both our employees and our contractors. And it is -- the safety thing is very, very important for us. And it is challenging in an African setting where people's cultural settings are different to what we might be used to in Australia. But nevertheless, we are making very good inroads into that. And people are performing very well.

As I say, in terms of contribution to community, that's also been particularly strong, about USD 143 million into the community -- into our host communities or countries, I should say, over the quarter. As we have reported in the past, very high local and national employment rates, about 95%. Our gender diversity is reasonably stable, but that's -- and it's low relative to Western terms, but I think that's a function of the cultural setting in which we operate rather than anything else.

Environmentally, we're working along as we're targeting remaining fairly stable in terms of carbon emissions, et cetera, et cetera. We've got no particular environmental incidents during the period.

Now I mentioned at the outset organic growth, we have been working pretty hard on the exploration and study side of things to try to improve the life of mine of each of the existing mines that we have. Now we did put out a release in February documenting details of exploration success at Yaoure and also the Sissingue, Fimbiasso operation. So anybody who would like to see the details should refer to that document. But the drilling has been going very, very well, particularly at Yaoure around the CMA underground at depth and also to the north, we've seen to identify another particular area we call Zion, which is well mineralized. And we're also getting some pretty interesting results out of the Yaoure pit itself actually. We're not sure we fully understand the structural complexity in there, but it certainly looks as if Yaoure -- the Yaoure pit might be a little bit better than we anticipated.

I mentioned before that we're working around the Fimbiasso area. We're also getting some pretty interesting results coming there. The assays indicate that mineralization is continuous down dip in a long strike. It doesn't go forever, but it's certainly enough to extend the life of the operation up there by a couple of years. So that's particularly encouraging.

At Edikan, we have been looking at the mining lease and the adjacent exploration permits. It's an interesting situation because a lot of our work in Edikan, well, we started Edikan in 2012. So in the early years, when we're looking at various deposits, we were using a very much lower gold price for optimizations, et cetera, than what would be reasonable today. So we're going back to taking a look at some of those opportunities to see whether, in fact, with a higher gold price, we might be able to bring some of that mineralization into our reserve inventory.

We're also looking at exploration works on the newly acquired or relatively recently acquired exploration permits. Work this quarter has been postponed while we've been gaining land consent and access. And this has been made a little bit more complicated because of the very highly elevated cocoa prices that are being experienced in West Africa. So people are a little reluctant to allow access to land if it means that they're not being compensated at current market rates for their cocoa trees. So there's been a fair bit of discussion around that, but we have actually reached agreement and in fact, post the end of the quarter, the compensation money has been moving pretty freely. We'll be getting access and working during the current quarter.

The other thing that we've done on an exploration front, which is very interesting, I think, is that in January, we entered into a bond and cooperation agreement with a division of Ajilan & Bros, which is a large Kingdom of Saudi Arabia conglomerate. Now what we're going to be doing with our friends at Ajilan is investigating various projects located both in Saudi itself and also on the African continent, particularly up in the north, where we're having a partnership with people from Saudi would be beneficial from a geopolitical perspective. We're going to be looking at early-stage projects in the Kingdom, where the government is running a tendering -- program of tendering our properties to private companies. So that is one area that we'll be looking at.

And as far as the North African projects are concerned, we are looking at early stage things, but more likely, we'll be pushing towards projects that are PFS or DFS stage and can be enhanced into development in the medium term using Perseus' in-house exploration and development skills.

So this is a very, very exciting opportunity really. I mean, how successful it is remains to be seen, for sure. But certainly, work there -- there's a lot of change going on, on the African continent in terms of influence. The Saudi is very keen to invest in, in the minerals industry, and we're very keen to work with them to see if there is some mutual benefit to be derived.

In terms of project development, our Meyas Sand project in Sudan, as people are aware, activities were suspended for a period of time while the country sorts itself out. We have reestablished ourselves fairly comfortably back on the site some time back. And the services contract has been signed with a local drilling contractor aimed at testing the exploration targets on the Block 14 block and also in the GSS pit. We do expect work to start on that in the June quarter, and we'll be accumulating for the drill results. Now one of the things that we will be doing as far as Meyas Sand is concerned, I mean we're looking to develop that project anytime soon. Now we will continue to drill it. And we are planning to update the feasibility study that was done for the project that was done under the CIMM rules, which is the Canadian standards. And we will do that in order to be able to restate the reserve as -- JORC compliant ore reserve rather than foreign mineral reserve estimate. The point being that at the present time, there's something like [ 2.8 million ] ounces in that deposit. We believe that we can extend that well beyond that. And of course, that will then be added to the existing reserves at the 3 mines. That's what we've picked up through the Nyanzaga project, which I'll talk about in a second. And that will show that Perseus' total reserve inventory is pushing up towards the 10 million ounces in reserves, which is a fairly healthy position to be.

Now speaking of the Nyanzaga project, I guess people are well aware of the activities that Perseus's been involved with during the quarter. Now on the 22nd of January this year, we announced our intention to make an off-market bid for all of the shares in OreCorp, who, of course, the owner of an 86% contributing interest in the Nyanzaga project in Tanzania. In March, we received the Tanzania Fair Competition Commission approval for our offer. And as part of those negotiations, we agreed to increase the government's break carried interest from 16% to 20%. Later in March, we elevated our bid from $0.55 to $0.575, and that resulted in the OreCorp Board recommending our offer to shareholders.

Now since then, things have moved pretty quickly. So in April, post the end of the quarter, the offer was declared unconditional, having got over the 50.1% level. And we advised that we won't be -- weren't going to be raising the offer beyond that point. Now on the 17th of April, we passed the 90% ownership level in OreCorp, and we've commenced compulsory acquisitions. So for all intents and purposes, Perseus -- the deal is finished, formally closed on 19th of April, and we've been moving forward ever since.

Now I've just got back from Tanzania. And in fact, I mentioned Lee-Anne, our CFO earlier, she's on her way back from Tanzania. We're over there with Matt Cavidon, our Head of Project Development. And we've been talking to the Tanzanian government and all key stakeholders that we could find around the place over the last week or so. And I have to say that the response to Perseus becoming a partner of the government in Tanzania has been massively supportive and overwhelmingly strong, as it has been on the site indeed.

So we are looking forward very much now to moving this project forward very, very strongly. There will be 3 streams of work commenced almost immediately. One will be completion of the housing relocation and landowner compensation program that had been previously started. The second is to bring in a number of drill rigs to drill out the ore body. We believe there's a significant opportunity to extend the reserve beyond what had been previously stated with some additional infill drilling. And then the third line of work will be the front-end engineering and design program aimed at putting ourselves into a position where we can make a final investment decision to develop the Nyanzaga project later in the year. And then go into development, and that should take about 18 months to 2 years to reach commercial production.

So it's a very, very exciting opportunity this for us. It's going to add materially, we believe, to Perseus fortunes going forward. And of course, given our cash balance, we're able to fund that off the balance sheet, which makes the whole progression of the project so much easier. So very exciting and a lot of hard work has gone in over the last quarter, but it is starting to deliver some results for us and for our shareholders, in particular.

Now one of the things that I've been talking to shareholders about a lot in the last 3 months is our capital management strategy. Quite clearly, we're generating significant quantities of free cash given the elevated gold prices and relatively low all-in site costs that we've been achieving.

Now we have, over time, clearly articulated our plan to upgrade the asset, the quality of our asset portfolio through a combination of organic and inorganic means. And of course, to deliver this outcome in full, this will require us to use some of the cash results. For instance, the OreCorp offer was a cash offer. And of course, we have the capital program coming through from there.

Now notwithstanding these growth plans and the growth plans are certainly delivering, as I say, when you add up the reserve inventory at Nyanzaga, Meyas Sand and Edikan, Yaoure and Sissingue, it's becoming a very substantial number. Now I'm not allowed to add them up myself because one set of those results is under CIO amendment and the rest is under JORC, but nevertheless, if you do the sums, you'll figure it out that there's a very substantial portfolio of projects there, which gives Perseus, at this current time, at least 3 projects with a life of mine of well in excess of 10 to 15 years. So a fairly sizable asset portfolio.

Now notwithstanding these growth plans, it is likely that there's going to be surplus cash available for distribution to shareholders over and above that, which is payable under our existing dividend policy, which, you'll recall, is set to deliver a minimum of 1% annual yield. Plus what we've done in the past, of course, is to make various bonus dividend payments as well.

Now at the end of each half year reporting period, our capital management plan is reviewed. And of course, this will happen, once again, at the end of or -- after 30th of June. And at that time, consideration will be given to the size and method of distribution of cash to shareholders. So in the past, that additional distribution has taken the form of bonus dividends, but we'll also look to see whether we should be considering capital returns or share buybacks, which tend to be favored by some of our shareholders. So all in all, Perseus' cash position is strong, and benefits should continue to flow to our shareholders.

So in conclusion, as I said at the start of the call, we've had another strong quarter on all fronts, including gold production, all-in site costs, cash flow generation and business development. And pleasingly, the work has been conducted in a safe manner in line with the targeted standards and in a way that has generated material benefits for all of our stakeholders, including our host governments, communities, employees, providers of goods and services and our investors. And that is pleasing because that is the mission of Perseus Mining.

Now looking forward, our production and cost guidance for the 6 months to June 30 is looking likely to not only be achieved, but possibly even exceed it if we can stay on track. Our financial fortunes are strong, certainly helped by the [ buoyant ] gold prices. But our cash balance continues to remain very strong. What we're seeing the fact that we have used some cash recently to acquire the Nyanzaga Gold project. We do need to fund that development, as I said, and we're currently estimating that, that will come in at a cost of $450 million to $500 million. But we are continuing to generate very strong cash flows given that every day we are currently producing around 1,500 ounces of gold at a cash margin near enough to $1,250 per ounce at the present time or that equates to about USD 1.875 million in notional cash flow each day.

Now what we plan to do with this ever-growing cash balance is something, as I said earlier, that exercises the minds of both management and investors alike, not to mention our analyst friends who are on this call. Now without disclosing our hand prematurely, let me assure you that we do intend to continue to grow our company and incrementally improve the quality of our asset portfolio. And at the same time, we do intend to continue to return capital to our shareholders in appropriate amounts and using appropriate mechanisms.

As I said, for some time, our capital management strategy has been based on the base dividend generating a 1% yield, but we will look at this more closely at the end of the quarter. And as I say, watch the space.

Now finally, in conclusion, I do want to acknowledge the wonderful contribution made by all of the men and women that make up the Perseus Board, management and operating teams in what is now 5 countries. As a team, you continue to do an outstanding job, and I sincerely thank everyone on behalf of all of our shareholders and our Board for all their efforts in helping us to continue to deliver on the promises.

So thank you, everyone, for your attention today. This brings to an end of my presentation, and I'm happy now to take any questions that you may have. Thank you.

[Operator]

Thanks, Jeff. [Operator Instructions] Your first question comes from David Radclyffe at Global Mining Research. Please go ahead, David.

[David Radclyffe, analyst]

So just a couple for me. Firstly, on Nyanzaga Maybe can you give a bit of a time frame of what you're thinking for the infill drilling and studies before you can really come back to the market with sort of your sort of take on the project and putting a stamp on it? Obviously, there's been a number of approaches thought about over the years from Barrick with a very large open pit and then lower self-funding models and even things like an underground. So any color you can put on what you're currently thinking would be appreciated.

[Jeffrey Quartermaine, executive]

Yes. Okay. Look, look, we obviously did a lot of technical work as part of our due diligence study for this acquisition. And as part of that work, we formed a view that the best way to develop that deposit was to use a large-scale open pit as opposed to the development plan that had been fashion by OreCorp that seem more aligned to attracting project finance rather than optimally developing that deposits.

So we're reasonably certain that, that is the right way to go, and that's certainly being applauded by the government in the sense that it's making better use of scarce national resources. And it's also giving Perseus so much longer life project as well, I might say. Now I did mention during the early presentation that we're going to be commencing drilling very, very shortly. We've been talking to people in country about rigs which are currently available. And so they'll be getting going very, very shortly. And the time frame is, as I said, we would like to reach a final investment decision by the end of this year, which means that between now and then, we'll do detailed design be upgrading the reserve, upgrading the life of mine plan and coming up with definitive cost estimate for the project. So that should be all done by the end of the year, and then we'll move into development from there.

[David Radclyffe, analyst]

And then if I can have a follow-up on Yaoure. Obviously tracking well above guidance. Is there anything fundamental that we should be thinking in terms of the change of grade or throughput for the current quarter?

And then in terms of the mill throughput, obviously, the last couple of years, you've done 3.9 million tonnes. This year, tracking to sort of be below that, despite having sprint capacity, I guess, the mill has actually shown it can do over [ 4 ] for periods of time. So are we just seeing a more constrained capacity going forward? Or is this year a one-off?

[Jeffrey Quartermaine, executive]

Well, look, there's nothing abnormal that's going on there. I mean I should point out the capacity of the mill or design capacity at the mill is 3.6 million tonnes. So the fact that we've been doing well above has been a function of how well the plant has actually been operating. But I mean, the thing is what we are trying to do, and this has been part of the thoughts around bringing all the underground [indiscernible] from the CMA pit. But into the future, it will come from the CMA underground and the Yaoure open pit. And what we're looking to do is to blend that material keep reasonably steady grade [indiscernible] and reasonably steady into the future. I mean it does dip off as we sit today towards the end of the life of mine that we published when we set late last year, I think it was. But that is expected to change as we drill further down dip on the CMA underground. We've only gone down about 500 meters at this particular point. So we do expect to see a lot more material brought on the underground. And that when that gets into the moment plan, we'll see a continuation of production around current quantities and grade. So that's the ultimate plan.

I think the dip down in the throughput this quarter might have been a function of an elongated mill shutdown that we experienced [indiscernible] is there, we had to do it. pretty major reline, which had a bit of an impact on throughput for the period. But look, there's nothing untoward at Yaoure. The big challenge for us is, as I said last quarter, is to get ourselves back on track as far as waste removal is concerned because we did fall behind our plan in the December quarter. And a lot of work is going into that at the present time. The contractor is bringing additional equipment onto the site in terms of diggers and trucks and drills and the like. And more material will be moved, and we should be back on track around the middle of the year, not necessarily 30th of June, but plus or minus a bit, and we'll be on track, and things will move forward from there. But Yaoure has been quite a revelation, I must say. Very, very productive mine. And interestingly enough, we have similar thoughts about the Nyanzaga project as well. We think that perhaps a bit unloved by some of the experts out there, but we believe that under our stewardship, we can deliver a fine project. And if we can do as well as Yaoure, we'll be in good shape.

[Operator]

Your next question comes from Alex Pat at Citi.

[Jeffrey Quartermaine, executive]

I don't hear. I think you might be on mute.

[Unknown Analyst]

Jeff, given you've progressed on Nyanzaga, is there still any appetite for Newmont's ACAM asset?

[Jeffrey Quartermaine, executive]

Well, look, somebody did ask me this on the last webinar. We said, at that stage of the game, we would take a look at it. We did. We have taken a look at it, and we'll be communicating with Newmont in due course on that particular one. And at this stage, there's nothing further that I'd like to add.

[Unknown Analyst]

Right. And then just on Nyanzaga again. So are you thinking that your approach would be a larger open pit with no underground component of that?

[Jeffrey Quartermaine, executive]

Well, it's a large open pit, but depending on what happens when we get towards the bottom of the pit and what the drilling results are, we may well go underground because there is certainly a very -- well, apparently a very rich period -- a zone of high enrichment towards what the bottom of the scheduled [indiscernible]. Now how far that mineralization extends is something that deeper drilling will determine. And if there's an opportunity to go underground off the bottom of the pit in a similar fashion to what we've done in Yaoure, then that's something that we'll look at very, very carefully as we get further down there. But certainly, the initial period, and we're talking 14, 15 years as it currently stands, is through an open pit operation. But yes, no, if we find mineralization at depth, we'll be certainly going after it.

[Operator]

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

[Jeffrey Quartermaine, executive]

All right. Look, thank you very much, Nathan, and thanks, everybody, for being on the call today. As I said, another strong quarter, and we will continue to deliver those sorts of outcomes we expect in coming periods. It is very exciting for Perseus and for our shareholders on where we're currently positioned. And there are some really great opportunities there to kick some serious goals, and that's what we'll be trying to do.

So thank you very much. Look forward to talking to you further later in the year.