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Perseus Mining has potential for valuation upside from Exore acquisition: Canaccord Genuity

In Canaccord’s view, the most obvious synergy presented by the acquisition is the opportunity to exploit high-grade, near-surface free-milling gold resources.

Perseus Mining Ltd - Perseus Mining has potential for valuation upside from Exore acquisition: Canaccord Genuity
The transaction is on track to be completed in mid-September 2020

Perseus Mining Limited (ASX:PRU) (TSE:PRU) (OTCMKTS:PMNXF) is acquiring Exore Resources Ltd (ASX:ERX) (OTCMKTS:NLIOF) which will result in Perseus gaining a dominant gold landholding in Cote d’Ivoire

The parties have entered a Scheme Implementation Deed which will see Perseus acquire 100% of Exore in a deal that values the target at just under $60 million.

Canaccord Genuity has reiterated its buy rating for Perseus with a target price of $1.85 per share (current price: $1.14).

The following is an extract from Canaccord’s research report:

Bolt-on could give Sissingue extra life

Acquisition of Exore Resources (ERX:ASX | Not rated): PRU has announced that it intends to acquire 100% of the issued capital of ERX via a scheme of arrangement. ERX's key asset is an 80% interest in the Bagoe and Liberty gold projects in Cote D'Ivoire (moving to 100% through exercise of preemptive right at a cost of US$4.5m, funded by ERX). ERX is a constituent of our Exploration Watch List.

Under the transaction, PRU will issue 1 share for every 12.79 ERX shares on issue as consideration, representing a 78% premium to ERX's 20-day VWAP, with a total transaction value of A$64m (fully diluted). The transaction is subject to customary conditions (shareholder/court approval etc) with the current timetable suggesting completion in mid Sep'20.

Bagoe Gold Project: The Bagoe gold project is the most advanced of ERX's projects and is located ~75-100km south of PRU's Sissingue operation. Bagoe hosts total Resources of 530koz at 2.5 g/t (1 g/t cut off) between the Antoinette (78%) and Veronique deposits. Gold mineralisation is shallow (predominantly <150m), with metallurgy featuring free-milling and refractory sulphides with ~45% of project Resources (240koz at 2.9 g/t) considered free-milling. The wider tenement package (including Liberty and Tengrela projects) covers a total of ~2,000km2, with numerous additional exploration targets.

What it means for Perseus: In our view, the most obvious synergy presented by the acquisition is the opportunity to exploit high-grade, near-surface free-milling Resources at Antoinette through trucking to Sissingue, thereby extending mine life beyond the current ~3.5 years. We note that the current mine plan for Sissingue envisages trucking ore from the Fimbiasso deposit (~50km from Sissingue), with some cost synergies on offer should PRU look to employ an owner-operated truck fleet. Meanwhile, the high grades at Antoinette should comfortably cover overall trucking costs.

Exploitation of Antoinette would remain subject to further drilling, studies and permitting, but an ~A$120/Resource oz acquisition cost (implied from transaction consideration; represents ~4% dilution to PRU's issued capital) represents a relatively low-cost opportunity to extend mine life, while also delivering to PRU a much larger exploration footprint, in our view.

Valuation & Recommendation

Our target price of $1.85 (1x forward curve NPV5%/10%) remains unchanged; however, we note the potential for incremental valuation upside from potential development of the ERX properties as offsetting the minimal dilution resulting from the acquisition.

We maintain our BUY rating.

Quick facts: Perseus Mining Ltd

Price: 1.39 AUD

ASX:PRU
Market: ASX
Market Cap: $1.64 billion
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