Perseus Mining Ltd (ASX:PRU, TSX:PRU, OTC:PMNXF) has signed an agreement to acquire Orca Gold, a Canadian company focused on mineral exploration and development in the Republic of Sudan.
Total consideration for 100% of Orca was C$215 million, including about C$17 million in cash previously paid to Resolute and the remainder in stock (at a ratio of 0.56 PRU share for every ORG share) with an implied 63% premium on ORG’s closing price as of February 25, 2922.
The transaction timetable predicts the deal will be finalised on June 2022, following an Orca shareholder vote in May.
Orca owns a 70% interest in the Block 14 Project and a 34% strategic interest in Montage Gold, which has projects in Cote d’lvoire, home to two of Perseus’ projects: Sissingué and Yaouré.
According to Cormark Securities Inc, Block 14 is one of the best undeveloped gold deposits in Africa, forecast to produce 228,000 ounces of gold per year at US$751 per ounce, with an estimated capex/AISC (all in sustaining cost) of US$321 million.
Citi Research coverage: Buy, A$2.00 target share price
In its report, Citi Research said: “To gain exposure to large-scale, highly prospective, open pit gold projects, Perseus has become comfortable with the trade-off between geological potential in the Nubian shield vs geopolitical risk.
“Of course, there are risks in venturing further afield, however we note that the government is supportive of creating a gold industry in Sudan.
“Overall, we think the deal makes sense from risk-reward and PRU is accustomed to constructing new mines in West Africa. Exposure to West Africa, outside Ghana in particular, may not be for all investors and our Buy rating on PRU accordingly comes with a high risk flag.”
Canaccord Genuity (TSX:CF, LSE:CF) coverage: Buy, raised to A$2.35 price target
Canaccord Genuity said: “We assume the ORG acquisition completes, and based on our modelled development scenario lift our pro-forma target to A$2.35 (from A$2.25).
“While our first pass sees the transaction as being mostly neutral on a pro-forma net present value (NPV) basis, we look to further drilling/studies to more adequately assess the longer term value potential of Block 14.
“PRU’s track record of well-timed acquisitions (i.e Amara Gold) and project delivery (Sissingué, Yaouré) warrants some ‘benefit of the doubt’ in our view.
“In the interim, PRU trades on a proforma P/NVA of 0.72x, and as such, we maintain our BUY rating.”
Credit Suisse coverage: Outperform rating, A$2.00 share price target
Credit Suisse said: “We retain our A$2.00 target price and Outperform rating.
“Including B14 increases our NAVP5 by around 10% but decreases the EV/EBITDA (Enterprise value/Earnings before interest, tax, debts and amortisation) component of our blended valuation by an offsetting amount on share dilution.
“We continue to view PRU positively, with sector-leading FCF (Free cash flow) generation and a track record of acquiring and executing growth projects.
“On our assumptions, PRU can comfortably fund its growth pipeline and possibly further value accretive growth as the sector looks toward further consolidation.
“Near-term EPS (earnings per share) decreases reflect increased share count following transaction. The transaction is subject to a C$7.5 million termination fee.”
Cormark Securities coverage: Buy rating and C$1.75 target price (TSX)
Cormark Securities said: “Block 14 meets PRU’s criteria on scale and size, with the potential to assist in extending PRU’s targeted 500,000 ounce per year beyond 2025, along with exploration/resource conversion at its existing resources (which we expect and partly model).
“Once incorporated into our model, we expect Block 14 to account for more than 20% of our total NAV (and more than 30% excluding balance sheet items).
“The transaction will be accretive to our NAVPS, given the ~0.55x implied takeout price and PRU trading at more than 0.8x our NAV; however, we do think Sudan increases the overall risk profile.
“Our target and recommendation are unchanged at this time.”
About Perseus Mining
Perseus Mining Ltd (ASX:PRU, TSX:PRU, OTC:PMNXF) unveiled another record quarter with both half and full-year gold production exceeding the top end of guidance for the period ending June 30, 2021, and continues on its stated trajectory of producing 500,000 ounces annually.
In the June quarter, the company recorded production of 102,788 ounces, up 16% on the March 2021 quarter and up 50% on the December 2020 quarter with all three operating mines - Edikan in Ghana, and Sissingué and Yaouré in Côte d’Ivoire - performing strongly.
Half-year gold production stood at 191,246 ounces and FY2021 gold production was 328,632 ounces, with both numbers exceeding the top end of their respective production guidance ranges while quarterly gold sales increased 23% to 106,899 ounces at an average realised gold price of US$1,652 per ounce, 1.5% more than the prior quarter.