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Perseus Mining has target price raised by Canaccord; Macquarie maintains outperform

Canaccord Genuity has increased its target price for Perseus by 19% to $1.90 on account of updating its Edikan Gold Mine model assumptions for the new life of mine plan.

Perseus Mining Ltd - Perseus Mining has target price raised by Canaccord; Macquarie maintains outperform
Macquarie expects group production to reach +500,000 ounces per annum in FY23

Perseus Mining Limited (ASX:PRU) recently updated the life of mine plan (LOMP) for its Edikan Gold Mine in Ghana, West Africa.

Annual gold production is now averaging 212,000 ounces with the expected production of around 231,000 ounces per annum on average over the next four years.

Importantly, the total estimated gold production of 1.307 million ounces over the life of mine is 95% higher than the amount estimated in the previous LOMP.

Canaccord Genuity has increased its target price for Perseus by 19% to $1.90 on account of updating its Edikan model assumptions for the new LOMP.

Macquarie Research expects Edikan production to peak at close to 270,000 ounces in FY24 and group production to reach the company’s +500,000 ounces per annum aspiration in FY23.

Following are extracts from Canaccord’s and Macquarie’s research updates:

Canaccord

Step change - updated Edikan

LOMP Higher-grade UG provides kicker to updated Edikan LOMP: PRU's updated Life of Mine plan (LOMP) for Edikan is based on updated Reserves of 1.6Moz at 1.1 g/t, and now incorporates revised pit optimisations (US$1,300/oz vs prior US$1,200/oz), updated unit costs, and inclusion of the higher-grade Esuajah South UG deposit in the mine plan (from FY21).

Increased gold production, longer mine life: The new LOMP delivers an average annual production of 211koz (+22% over prior CGe) anticipated over an extended Reserve life of +6 years (vs prior 4.5 years). While our estimated LOM AISC are mostly unchanged at US$959/oz, forward curve gold price assumptions provide for potentially strong operating margins (AISC margin averaging ~60%) over the remainder of the LOM.

Peak Group production can now be maintained out to 2025: In our view, a key takeaway is a significantly improved Group production profile, with our revised estimates now suggesting that PRU can maintain peak production rates (460-520kozpa) for four years from FY22-FY25. This compares to prior expectations for production to peak in FY22 before declining (Figure 7).

While the benefits to earnings and cashflow are longer dated, the longer mine life and higher production rates from Edikan more than compensates for the relatively short mine life anticipated at Sissingue (notwithstanding potential for incremental additions to Sissingue mine life, i.e. Zanikan).

COVID-19 update - no change to guidance (with caveats): PRU recently reported that it has not experienced any operational impact from COVID-19, with FY20 guidance (260-300koz at US$800-975/oz AISC vs CGe 281koz at US$964/oz) unchanged. Yaoure development timelines (commissioning Dec'20) also remains unaffected. However, PRU noted that the situation remains fluid and should there be any change, guidance (and Yaoure timelines), may be reviewed in Apr'20. We note that PRU maintains a solid balance sheet, with cash and bullion (as at Dec'19) of A$120m, and undrawn facilities of A$166m. In our view, this should provide PRU with a buffer from any minor operational disruption or potential delay at Yaoure.

Valuation & recommendation

Our target price (1x forward curve NPV5%/10%) increases 19% to $1.90 on account of updating our Edikan model assumptions for the new LOMP (project NPV risked to 95% to account for permitting/timeline risks). We maintain our BUY rating.

Macquarie

Event

  • PRU has released an updated life-of-mine (LOM) plan for its Edikan gold mine in Ghana, West Africa.

Impact

  • ~230kozpa over the next 4-years: Edikan’s revised plan estimates average production of 212kozpa over a 6.2-year mine life which includes 231kozpa over the next 4 years. We adjust our outlook based on the updated LOM plan and now expect production to average ~230koz over FY21-FY24 with 1.3Moz produced over the LOM, in line with PRU’s plan. We envisage a LOM AISC assumption of US$991/oz which is ~13% higher than PRU’s US$879/oz expectation largely due to higher underground mining cost expectation.
  • Underground growing the outlook: Edikan’s LOM production is 95% higher than the previous plan largely due to the incorporation of the Esuajah South Underground and a larger AG open pit. We expect production at Edikan to peak at ~270koz in FY24 and average 230kozpa over FY21-FY25.

Action and recommendation

  • Maintain Outperform. Edikan’s updated plan envisages gold production of 1.3Moz over a 6.2-year period which was broadly in line with previous estimate. However, we now expect a meaningful reduction in AISC over the back half of the mine life. PRU’s +500kozpa production aspiration is firming with Edikan’s contribution a key component of this outlook. Another key to the +500kozpa run rate is Yaouré’s development which we believe could see schedule impacts from the COVID-19 pandemic. We recently pushed back our expectation of first gold at Yaouré from the CY20-end stretch target to be in line with the original development delivery schedule of 3QFY21.

Quick facts: Perseus Mining Ltd

Price: 1.215 AUD

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