Perseus Mining Ltd (ASX:PRU) achieved market guidance for the 2019 financial year by producing 271,824 ounces of gold from its West African operations at US$960 per ounce.
The company 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 its third gold mine Yaouré in Cote d’Ivoire.
Hartleys has maintained its buy recommendation for Perseus and has increased the price target to 90 cents per share.
Following is an extract from Hartleys’ research update:
Perseus Mining (PRU) produced 64kozs in the June 2019 quarter, at a reported AISC average of US$989/oz (A$1412/oz). Full year (FY2019) production was 271kozs, at US$960/oz (A$1352/oz) reported AISC. Corporate all in costs (CAIC) were A$1503 for the June 2019 quarter and A$1508/oz for FY2019.
Relative to the March 2019 quarter gold production was down a bit, from 67kozs, while reported costs were up, from US$851/oz (A$1197/oz). A drop in average Edikan ore head grade (1.07 g/t to 0.97 g/t) was mainly responsible.
A decision to move back the Sissingue pit walls early to clean up and pre-empt problems in the coming wet (September/October) meant that access to higher ore grades was deferred to the current September 2109 quarter. Production again reconciled positively to reserves in the June quarter. Perseus has flagged “potentially higher gold production and lower costs going forward relative to previously published life of mine plans”.
Total cost control
In contrast to many Australian peers, expenses outside AISC fell to less than 10% of CAIC. Hartleys estimates Perseus’ total corporate costs were A$96M in JQ2019, compared to $95M in MQ2019 and the average for the last seven quarters of A$104M. Lower total costs in the June 2019 half corelate with the shift to a single contractor and simplified mine plan at Edikan. We estimate earth moving costs at Edikan have collapsed from A$32M/qtr to < A$20M/qtr.
Hartleys estimates Perseus cleared A$23M at the corporate level in the June 2019 quarter of which $16M was spent at Yaoure. In addition, $13M cash was taken out of working capital and restricted cash accounts, and A$54M was raised through the warrants exercise. Perseus had cash of A$170M at the end of June 2019, with net US$120M undrawn debt facility (or net cash of A$130M, with US$150M undrawn debt facility).
500,000 ounces pa by 2021
Production guidance for the current half is set at 120-140kozs at US$850- 1000/oz AISC, followed by 140-160kozs in the half to June 2020 at 750- 950/oz AISC. Sissingue’s wet season falls in the current half accounting for the more cautious guidance.
Site works are underway at Yaoure. The company plans to pour gold at Yaoure in January 2021, with a ‘stretch’ target of a month earlier. A Hi-Seis survey and 3 deep holes are planned in FY2020, to help firm up underground mine plans. Elsewhere, significant artisanal mining activity flared up at the Degbezere prospect southwest of CMA in May 2019. Regional exploration is a key aspect of the project as very little drilling has been done outside the Yaoure/CMA area.
Transformation complete. Buy.
Perseus affirmed its relative low-cost status in the June 2019 quarter. The company now has the balance sheet, margins and growth profile befitting a much better share price rating. Incorporating higher base case gold price assumptions upgrades our valuation to 86cps and price target to 90cps. Buy recommendation maintained.