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Perseus Mining’s price target raised by Canaccord Genuity after exceeding gold production target

Published: 05:39 26 Jul 2019 BST

Edikan gold operations in Ghana
Edikan gold operations in Ghana

Perseus Mining Ltd (ASX:PRU) recently achieved its market guidance by producing 131,269 ounces of gold at US$918 per ounce and 271,824 ounces at US$960 per ounce for the June 2019 half-year and full 2019 financial year respectively.

The company has also signed documentation for a US$150 million revolving cash advance facility that will be used for general purposes, including the refinancing of US$31.5 million of existing project loans and eventually funding the development of Perseus’ third gold mine Yaouré in Cote d’Ivoire.

Global capital markets group Canaccord Genuity has retained its buy rating for Perseus and has increased the price target to $1.05 from $1.00.

Following is an extract from Canaccord Genuity June quarter report on Perseus:

JunQ softer than expected, but guidance achieved: Group production of 64koz was softer against CGe of 77koz, with AISC of US$989/oz lower than CGe of US$1,042/oz. The result took FY19 production to 272koz, hitting the bottom end of the production guidance range of 271-291koz.

Edikan - lower grades, offset by lower unit mining costs: Edikan produced 43koz at AISC of US$1,090/oz, vs CGe of 51koz at US$1,232/oz. Gold production was impacted by lower head grades, with zones of harder ore from Esuajah North requiring to be blended with softer, lower grade oxides to achieve targeted throughput rates. Lower production was offset by lower unit mining rates (-20% vs CGe), with AISC coming in well below our estimates despite the higher strip ratio and lower gold production.

Sissingue - lower grades and higher strip temporary: Sissingue produced 21.6koz at US$791/oz AISC, lower than CGe of 26koz at US$708/oz. Production was below expectations due mostly to lower grades, as mining operations focused on increased waste stripping over mining higher grade ore zones in preparation for the wet season. Higher grades and lower strip ratios are expected from the SepQ.

Outlook: FY20 guidance is in-line with expectations with 260-300koz at US$800-975/oz comparing against prior CGe of 267koz at US$949/oz. Production has a slight bias to the 2HFY20.

Yaoure - timelines maintained for first gold by end 2020: Yaoure construction is expected to commence in earnest in Sep with preliminary activities focusing on site development works. US$94m of the US$265m capital cost has been committed, with the only outstanding item being the Mining Convention (no timelines provided). Despite the slight delay to commence construction, PRU has maintained its guided timeline to first production in Dec'20, but has admitted it is a stretched target. We have left our
model assumptions unchanged (commissioning DecQ'20), but see any minor timeline slippage as immaterial to our investment case.

PRU is more than comfortably funded for the development of Yaoure, in our view, with current cash and bullion of ~A$170m, access to debt facilities (+US$110m post refinancing of existing facilities totalling US$31.5m) and forecast operating cashflow over FY20 of A$178m.

Valuation & Recommendation

Model revisions include a minor upward adjustment to FY20 production estimates to 277koz, lowered unit mining costs at Edikan, and updated forward curve pricing assumptions for gold. Net of the changes, our target price (1x forward curve NPV5%/10%) increases slightly to A$1.05.

We maintain our BUY rating, with PRU a Q3 Focus List Pick.

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