Perseus Mining Ltd (ASX:PRU) is more than comfortably funded for the development of its third gold mine, Yaouré in Cote d’Ivoire, with cash and bullion of about $170 million.
Citi Research has lifted its target price for Perseus by 10 cents to 85 cents per share and has maintained its Buy/High Risk recommendation.
Following is an extract from Citi’s research update on Perseus:
JunQ meets guidance, lower cost FY20 to come
Maintain Buy (High Risk) — PRU’s share price has tracked gold to US$1400/oz+ rallying 47% QoQ (vs XGD+30%). On our gold price deck of US$1450/oz in FY20, we expect 25% EBITDA growth and an EV/EBITDA multiple of 3.6x, a discount to peers at 8.5x (consensus). We maintain our Buy (High Risk) call, TP lifts to 85cps.
JunQ/FY19 production — JunQ production was 64koz Au, down 4% QoQ. FY19 output lifted 6% to 272koz with the ramp up of Sissingué, to meet guidance (271- 291koz); we expected 279koz. All-in site costs at US$989/oz (+16% QoQ, +8% YoY) reflected lower Au output and a rebound from a low MarQ base (US$851/oz). FY19 costs of US$960/oz declined 9% on FY18 driven partly by lower-cost Sissingué.
Edikan headwinds temporary — Edikan production of 43koz (-5% QoQ, -17% CitiE) was lower than expected on tonnes milled and grades from Esuajah North (0.97g/t vs reserve 1.02g/t). Edikan output is a tradeoff between higher-grade fresh ore and gold recovery. On the call, PRU said grades were reconciling well. While costs were above US$1000oz (US$1090/oz, +21% QoQ, +11% CitiE), the start of mining from AF Gap in 2H20 is expected to lift grades and lower costs.
Edikan’s contribution to EBITDA expected to lift in FY20
Outlook, FY20 and Yaouré — FY20 expects 260-300koz, similar to FY19 at lower site costs of US$800-975/oz. Production is weighted to 2H (140-160koz) on higher Edikan grades. For FY20, we estimate 278koz @ US$928/oz. PRU expects to break ground at its third gold mine, Yaouré, in the coming week; the schedule for first gold in Dec20 is maintained. Signing of the Mining Convention to lock in fiscal terms should be the next catalyst.
Corporate — Cash and bullion at June 30 was ~A$170m, with A$127m cash – an increase of A$46m QoQ. A$54m of cash was from the exercise of warrants. On our numbers, PRU shouldn’t need to draw on its US$150m credit facility to fund Yaouré. PRU hedged 16% of production to FY21 (54koz of Au @ US$1290/oz). Including spot contracts, total hedge position is 274koz @ $US1299/oz (vs spot US$1434/oz).
Perseus share price performance
Changes to estimates — The lower-than-expected JunQ reduced FY19 NPAT by A$10m and the issue of warrants increases the share count, reducing EPS. We roll forward our valuation to SepQ and de-risk our Sissingué valuation (100% NPV, from 90% previously). We move our model and NPV from a nominal price series and discount rate, to real, to align with our diversified and bulks coverage. NPV lifts by 0.14cps. Net-net our target price lifts by 10cps to $0.85/sh.