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Perseus Mining has price target raised by Hartleys after strong production in December half

Perseus forecasts a stronger grade-driven performance in both production and costs in the June 2020 half year.

Perseus Mining Ltd - Perseus Mining has price target raised by Hartleys after strong production in December half
The company is expected to produce 275,000-295,000 ounces of gold for the full FY20

Perseus Mining Limited (ASX:PRU) produced 134,980 ounces of gold in the December half at an all-in sustaining cost (AISC) of US$942 per ounce from its gold mines in West Africa.

The company is expected to produce 140,000-160,000 ounces of gold at US$750-950 AISC per ounce in the current June half.

Hartleys has raised its net asset valuation of Perseus from 98 cents per share (cps) to 108 cps, and the 12-month price target has been lifted to 129 cps.

Following is an extract from Hartleys’ research update:

Performance puts PRU in full control

Perseus (PRU) produced 69.2kozs in the December 2019 quarter; 48.3kozs from Edikan and 20.9kozs from Sissingué. The Company’s AISC average was US$962/oz. At Edikan average ore grades and throughput improved, pushing up gold output for the second consecutive quarter. At Sissingué ore was mined outside the main orebody, forestalling higher ore grades to the second half.

Mill to June 2019 block model reconciliation for the 3 months were 127% and 95% (ounces), at Edikan and Sissingué respectively. Perseus suspects Sissingué might return to positive reconciliation in the main ore position. To reiterate - in the year to June 2019 Perseus added 56kozs (3%) to Edikan reserves and 25kozs (6%) to Sissingué reserves after reconciliation alone (no redesigns).

Drilling continued at Zanikan, 20km south of the Sissingué mill. Sporadic high grades were recorded over 800m strike. We still estimate 50-100kozs order of magnitude inventory for Zanikan, a year or two extra mine life for Sissingué.

Yaouré completion firms to December 2020.

Total costs in the December 2019 quarter ($114M) were less than in the September quarter (A$116M). Perseus effectively put A$29M in the bank during the quarter, before spending A$105M at Yaouré. Corporate all in costs (CAIC) were A$1744/oz produced (A$1651/oz pre-hedge). Works required to pour gold at Yaouré by the stretch target date of late December 2020, remain on schedule.

Available funds ahead of requirement

Cash at the end of December 2019 was US$81M (US$31M net), with US$100M to draw on the debt facility and US$155M still budgeted to spend at Yaoure. Assuming full debt drawdown and a minimum cash balance of $US50M, Perseus needs just US$24M cash from operations over the next 3- 4 quarters (US$6-8M/qtr).

The Company’s guidance range (140-160kozs for the half to June 2020, following on from 135kozs in the December 2019 half) are unchanged from the June and September indications. Perseus forecasts a stronger gradedriven performance in both production and costs in the June 2020 half year.

Perseus’ received gold price was US$1411/oz (A$2075/oz) for the December quarter. Total hedging at the end of the quarter was 276kozs at US$1348/oz, compared to 267kozs at US$1327/oz at the end of September 2019.

Retain Buy.

Perseus has pretty well covered Yaouré’s capex, to the point that full draw down of its US$150M debt facility looks unlikely - as the Company has been saying for some time. Performance to plan, over such a program, gives Perseus power as a trusted operator (in testing jurisdictions), with the prospect of swelling financial muscle. We think they will use it wisely, and earn a share price premium. Hartleys’ net asset valuation is up from 98cps to 108cps, and our 12month price target is lifted to 129cps.

Quick facts: Perseus Mining Ltd

Price: 1.275 AUD

ASX:PRU
Market: ASX
Market Cap: $1.49 billion
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