Perseus Mining Ltd has received an intermediate/junior producer top pick from Canaccord Genuity, which maintained its target share price at A$2.10 and has also predicted a 3.7% increase in gold prices over the long term.
Canaccord cited an expected ramp-up in production at Perseus’ Yaouré Project that is expected to produce a lift in earnings, as well as mine-life extensions for the Sissingue Project which could provide near-term valuation levers.
Perseus is a rapidly growing West African gold producer, developer and explorer. Its third mine, Yaouré, poured its first gold in December 2020.
The following contains excerpts from Canaccord Genuity’s precious metal producer research report:
Gold price fluctuations
Canaccord predicts a 2% quarter-on-quarter reduction in gold production across the board, with all-in sustaining costs (ASIC) increasing by an average 4%. Canaccord continues to flag industry cost pressure and impacts on productivity as factors, citing skilled labour shortages in WA and border closures as some of the high-impact issues.
Despite these challenges, FY22 end guidance for WA-based gold producers represents an 11% average year on year increase.
Canaccord is predicting a short-term fall in gold price, averaging 1.5% over 2022 end to 2023 end. Long term gold prices have been lifted based on forward curve assumptions by 0.6% to US$1,860 per ounce.
Currency revisions predict a long-term fall of 3% (0.72) in the Australian dollar’s strength against the American dollar, resulting in lucrative conditions for gold producers that Canaccord predicts will raise long term gold prices by 3.7% to A$2,556 per ounce.
Supportive macro environment
“Broadly speaking, we see a supportive macro environment for gold with record fiscal and monetary stimulus, ultra-low interest rates and rising debt levels. However, prospects for potential quantitative easing tapering lead us to be cautious in the near term.” Canaccord said in its report.
Despite a poor short-term outlook, Canaccord sees Australian gold producers as undervalued, trading at an average implied gold price approximately 12% lower than spot. Profit to net asset value (P/NAV) ratios continue to trail, highlighting a clear disconnect between equities and the Australian Dollar gold price.
Senior producers are trading on P/NAV’s about 35% lower than their historical averages, and intermediate\junior producers are trading at 8% lower than average.
Valuation
“Our valuation changes result from updated commodity price and currency assumptions. Our price targets increase by an average of 4% for the senior producers and 8% for the intermediate/junior producers,” Canaccord said,
In regard to Perseus, Canaccord said: “We expect the Yaouré ramp-up to drive improved production in the short term, with 2HCY21E (second half, calendar year 2021 end) guidance implying an annualised run-rate of 500,000 ounces per annum (+50% year on year).
"We estimate a ramped-up Yaouré to drive substantial lift in earnings/FCF (FY22E FCF yield 26%), while potential for mine life extensions (Sissingue) could provide near-term valuation levers."