Perseus Mining Limited’s (ASX:PRU) two producing gold mines, namely Edikan in Ghana and Sissingué in Côte d’Ivoire, produced a total of 57,983 ounces of gold during the March 2020 quarter.
The company maintained its targeted cash margin of more than US$400 per ounce of gold produced, generating a notional cash flow of about US$24 million from operations during the quarter.
Sissingué continued delivering strong results, while temporary technical challenges (since addressed) detracted from Edikan’s recent strong production and cost performance.
Hartleys has maintained its buy recommendation for Perseus with a 12-month price target of $1.39 per share (current price: $1.00).
Following is an extract from Hartleys’ research update:
Perseus (PRU) produced 58kozs in the March 2020 quarter, down from 69kozs in the December 2019 quarter. Gold production was marred by a drop in metallurgical recovery at Edikan. Having fallen behind schedule due to a maintenance issue, a decision to increase the proportion of higher grade carbonaceous ore from Bokitsi pit backfired, dragging recovery down to 61%, from Edikan’s recent 85% average. Sissingue performed to Company plan, exposing high grades across the pit floor late in the quarter. Across the Company, total costs were down for the second consecutive quarter.
Forward production guidance is suspended under cover of COVID-19 related uncertainty, although the Company indicated the current trajectory is towards about 80kozs for the June 2020 quarter, which is near the lower end of previous guidance. Sissingue pit ore grades in April have risen to budget 2.5 g/t, and Edikan is back on point. The ‘stretch target’ of a gold pour at Yaoure in December remains within the Company’s capability. Construction costs are within budget, with an estimated US$136M (51%) still to be outlaid.
Perseus’ revised Edikan life of mine (LOM) plan increased planned gold output from 670kozs to 1.30Mozs, by including a larger AG pit and committing to Esuajah South’s underground development. Edikan LOM costs from July 2020, are estimated at US$880/oz plus US$31M capital for development of the underground mine. FY2021 costs will feature investments in pit cutbacks (20-25% increase in earth movement above the FY2020 rate) and underground mine development.
Dealing with COVID
Sites and nearby communities are COVID19 free at this stage. Ghana and Cote d’Ivoire borders are closed. Perseus’ managers are drawing on recent experience keeping operations going during the ebola outbreak. In the event of a COVID19 outbreak near Edikan or Sissingue, the sites would operate under an island strategy in which the workforce resides in the camp. Expatriate worker layovers will be in country for the time being. Yaoure requires access to more transitory labour during the construction phase. Getting access to specialist trades not available in Cote d’Ivoire, could be an issue at some point.
$US15M cash added
US$150M debt facility is now fully drawn and cash and bullion stood at US$162M at the end of March, for net cash of US$12M. Net cash added in the March quarter, before US$29M Yaoure capital costs, was US$15M (A$23M) Perseus sold forward additional 69kozs during the quarter, taking total hedging to 317kozs at $US1393/oz. On our figures, it was the 9th consecutive quarter of net cash generation for PRU.
Hartleys does not expect Edikan’s March quarter metallurgical meltdown to linger. Our base case valuation is up from 108 to 126cps, due to the increased inventories in the Edikan mine plan. At a spot gold price of A$2615/oz, our valuation is $1.72/share. We maintain a Buy recommendation with a 12 month price target of $1.39 per share.