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Perseus Mining gets review from Canadian broker

Published: 08:20 30 Jul 2013 AEST

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Dual listed Perseus Mining (ASX/TSX: PRU) has received a review from Jennings Capital which opined that the low cost structure of its Edikan Mill, formerly referred to as the Central Ashanti Gold Project in Ghana is a good platform for growth.

The cost savings are due to low power and reduced grinding expenses, which set Edikan's processing cost in calendar 2012 at $9.58 per tonne. Even though costs soared to $13.86 per tonne in the first half of this year, Jennings believes that Perseus has taken care of the operational issues that caused the spike.

As a result, Jennings, which initiated coverage with a C$0.90 target and a "hold" rating on the stock, sees processing costs more in line with last year's rate, with a prediction of $10 per tonne for the rest of the year.  Current share price is C$0.53.

Overall, Jennings said Perseus is "hitting its stride" while still in the early stages of production at Edikan. The mill is two years into an 11-year shelf life, during which gold production is expected to be, on average, 207,000 ounces per year.

Jennings predicts the company's cash cost for next year will be $1,071 per ounce.

Jennings also said Perseus is highly leveraged to gold prices, so much so that for every 10 per cent rise in bullion, it will raise its stock target price 25 per cent.

What also makes Perseus compelling is its development project in Côte d’Ivoire, Jennings said, which could nearly double the company's production profile to 411,000 ounces when it starts up in 2019.

Aside from organic growth, Jennings adds the possibility that Perseus could make an all-share  acquisition, once "Edikan’s production and cost consistency is demonstrated and market valuation responds." Targets include PMI Gold's (CVE:PMV) Obotan project and Asanko Gold's (TSE:AKG) Esaase project.

Perseus has dealt with three primary setbacks, including crusher problems, a decision on the Sissingué Gold Project and low metal prices.

The junior miner is postponing development at Sissingué to avoid raising equity funds to finance the project while gold prices remain low. Instead, the company prefers to use cash flow from Edikan and an existing $100 million loan. Stripping out Sissingué from Jennings' valuation would raise its target price $0.18.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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