Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

Good morning, and welcome to the Perseus Mining quarterly investor webinar. [Operator Instructions] I will now hand over to Perseus Managing Director and CEO, Jeff Quartermaine. Please take it away, Jeff.

Well, thanks very much, and welcome to this conference call to discuss Perseus' September 20 quarterly report that was released to the market earlier this morning. I'm joined here in Perth by Andrew Grove, our Head of IR and BD, so he can help you with any difficult questions towards the end of this presentation. Now looking back over the September quarter, it's really apparent that the world in which we live has not got a whole lot better since our last teleconference in July. And unfortunately, for some people, it's actually got a lot worse. As people on this call would note, COVID-19 is showing few signs of disappearing. In some countries, geopolitical tensions appear to be spreading and threatening trade relations and security. And of course, the political cycle has advanced in many countries, bringing a daily stream of bewildering statements from people who, in the past, we probably would have looked to leadership. The one bright light, it seems, has been the gold market, which has been a major beneficiary of the negativity and uncertainty that I just mentioned a minute ago. We at Perseus have don't claim to have predicted any of this, but a key consideration in formulating our corporate strategy in recent years has been to position ourselves as best we could to take advantage of a market upturn even when it happened. I'm very pleased to say that in the September quarter, Perseus has been able to do just that. Not only have our 2 operations at Edikan and Sissingué performed strongly, delivering one of our better quarters of gold production and in the process allowing us to generate a material amount of cash, but in spite of COVID and other challenges of operating in West Africa, we've advanced the development of our third mine, Yaouré, up close to the point where if this -- the recent price strength continues beyond this year, then Perseus is extremely well positioned to do very, very well. So in summary, Perseus is in a good place at the present time. And with our team having put in a lot of hard work over a number of years, it's with some satisfaction that we report on the September quarter to date. Now for those of you who haven't had an opportunity as yet to read the release, let me summarize it for you before discussing a few issues in a bit of more detail. So firstly, this quarter, our 2 mines, Edikan and Sissingué, have continued their recent strong performance. Combined, the mines produced 68,722 ounces of gold at a production cost of USD 823 per ounce and a weighted average all-in site cost of USD 964 per ounce. Our average cash margin on each ounce of gold produced was USD 631 an ounce, which exceeded our stated strategic target of $400 ounce on by more than 50%. And this led us to be able to generate notional cash flow of approximately USD 43 million for the quarter. Production for the quarter was 6% higher than in the previous quarter, so 6% higher than June, and about 19% higher than March. All-in site costs were about 3% higher than June mainly as a result of royalties paid on the higher gold prices and also a few additional COVID-related costs coming to account. Looking to the future, our guidance for the 6 months ending 31 December remains unchanged. So as we've guided previously, we're looking for 77,500 to 82,500 ounces from Edikan; 48,000 to 56,500 from Sissingué, which gives us all up 125,500 to 139,000 ounces at a cost -- all-in site cost of somewhere in the range of $940 to $1,025 per ounce. Now based on the September quarter and, in fact, our performance to date so far this quarter, we're confident of not only achieving the guidance that we've given to the market but hopefully doing very well relative to those targets. Now at the same time, implementation of our strategy for value creation by development of mineral resources using our in-house development team has continued as planned. Development of Yaouré was 85% complete at quarter end and is running slightly ahead of time and under budget. Our stretch target of pouring first gold in December 2020 continues to be very much within our capacity. And finally, throughout the quarter, Perseus has managed to maintain its balance sheet strength through strong cash flows and prudent financial management. With a cash margin of $631 per ounce that I mentioned earlier, we generated notional cash flow, as I say, of USD 43 million from the operations, about 8% more than last quarter. Now taking this into account and allowing for the fact that during the quarter, we invested about USD 36 million in the development of Yaouré, we also funded exploration on 3 properties, paid tax in Ghana, paid corporate overheads, our cash and bullion balance at the end of September was around USD 147 million, giving us a net debt balance of USD 2.6 million at the end of the quarter. At Yaouré, as I say, we've been going pretty well there. We spent USD 191 million to date or 72% of the budgeted $265 million development cost. So that means that we've got $74 million to spend to finalize the development of the project. Now given that we've got $147 million of cash and bullion on hand, the cost to complete is -- development is fully covered, not even accounting for our future cash flow from operations over the next 3 months, which, at current gold prices, will exceed the $43 million that we generated in September. In fact, at this stage, we estimate that when all costs are paid on the Yaouré development, it will be evident that the entire capital cost of the project has been funded through existing cash balances and internally generated cash flow. In other words, we expect to end the capital program in a small net cash positive position, something that I think that a few of us would have forecast when we embarked on the development of the Yaouré mine back -- after we acquired it in 2016. So that's the September quarter in a nutshell. The quarterly report itself does contain an enormous amount of detail in all aspects of our business, but it is reasonably self-explanatory if you wish to look at the detail. Rather than go through all those details on this call though, I'd like to just focus in on a couple of subjects that I think will be of interest to listeners before opening the floor to questions, and these matters -- firstly, the progress of the Yaouré gold mine development. And secondly, I'd also like to just spend a little bit of time talking about the excellent performance at Sissingué and the completion of the Exore acquisition and plans that we have for assessment of the Bagoé Project. But first of all, turning to the development of our third mine, Yaouré. Now at the outbreak of the COVID crisis back in March, I said to our team at Yaouré that in view of the pending crisis, if anyone wanted to leave, they could be flied out immediately. The decision was entirely up to the individual. Now almost to a person, the response was, "No way. We're going to see this through to the end." And see it through, they have done. Some of the guys were on site for up to 4 months before getting much of a break. And as a result of their dedication and professionalism, we've managed to tick off milestone after milestone, and we're now getting very close to delivering Yaouré ahead of schedule and under budget. I do stress that we are not there yet. We don't want to celebrate prematurely, but the entire team has done a fabulous job to get us where we are. And I think it is important that the contribution be acknowledged. In the same manner, it would be remiss of me not to also acknowledge the commitment and efforts of our contractors and subcontractors, most particularly Lycopodium. In my opinion, this group is probably the preeminent contractor operating in Africa. They've established their reputation on many other projects, including, of course, our own Sissingué mine, and they've confirmed it once again at Yaouré. So well done to everyone involved at this stage. So with the quarter, as I said, we've continued to make very strong progress across all fronts, and we are on track to deliver on that stretch target we've been talking about of pouring first gold in December. For those of you who are keen to see the progress with your own eyes, please take a bit of time to have a look at the video footage that is on our website. It was taken at the end of September by using one of our drones. It gives a real bird's eye view of what's going on there on the ground. There's also some photographs in Appendix A of the quarterly report that also tell a pretty interesting story. Now one thing I would say that in making the excellent progress that's been achieved, I'm very happy about the fact that we've done so in a safe manner. We passed 4 million man-hours on the project during the quarter, recording only a single LTI, which unfortunately happened in July. But notwithstanding that unfortunate accident, this is a very credible safety record in any jurisdiction and it is a real credit to the team who have been working there under testing conditions. Now speaking of COVID, since detecting a couple of cases early in the quarter at Yaouré and immediately isolating the people involved, we haven't had any further problems with COVID at all on the site. In fact, we're not even too sure that -- whether the cases that did occur were actually proper infections or not as they -- the guys showed no symptoms and then when they were retested, they came back negative. But as we say, better to be safe than sorry. In terms of the actual progress made, development work, site -- offsite engineering, procurement, including all deliveries, are 99.99% complete. So pretty much everything we need to finish building the project is on site, and probably 99% of it's being installed. I won't go through all of the details of the on-site progress chapter and verse. You can read about that in the quarterly. But it is fair to say that across -- right across the site, everything has gone pretty well during the September quarter. And commissioning of electrical and mechanical components is now well underway. As I said, we were 85% complete at the end of the quarter across the site, 89% completed in the plant. And since then, we've advanced well beyond that. We are commissioning, as I say, at the moment. We are using standby generators in readiness for CI Energy, the Ivorian energy supplier, to switch on the mains power. We're not quite sure when they're going to do that, but it should be imminent. That, we would like to think. But in any event, provided it happens before the end of November, we should be in pretty good shape because we can commission everything on the side other than the mill with the power that we've got on today. So it's pretty good. Another major milestone that's been achieved since the end of the quarter is the construction of the tailings dam. Construction of the embankment is complete, and the dam is fully HDPE lined. This has been a pretty commendable effort, I would say, particularly given that it's been achieved during the current wet season. And I'll speak a bit more about that in a moment. Our mining contractor, EPSA's team, has been operating on the site for a while and is doing very well. All of their equipment is either on the site or customs cleared in Abidjan, waiting delivery to site. I think it's something like 70% has been mobilized to site to date. The progress that they've been making in moving waste from the CMA pit and also moving materials from the decommissioned heap leach pad to the ROM is pretty impressive, and it augurs well for the possibility of starting mining of ore in the CMA pit a little earlier than we were anticipating. In terms of other operations, readiness activities, we're also well advanced and we're expecting a seamless transition from development to operations as the quarter progresses. The one thing I should mention is recruitment. I know some other people have had a few challenges in that area, but we've had no issues at all in recruiting either local or expatriate people for our team. Given the location of Yaouré within Côte d'Ivoire, it's about 40-odd -- 40, 50 km from the capital city, people are very keen to join us. And in terms of expatriate employees, the prospect of joining a business that has multiple mines and can potentially offer a variety and a career path has proved to be quite attractive. COVID hasn't caused much of a problem in terms of getting people on board. Obviously, our guys have to take COVID tests before they travel. And then we have them quarantined before we let them loose on the site, but that's not been a major issue. Just at the moment, the Ivorian presidential election campaign is under full swing. The election takes place at the end of this month. And just simply as a precaution, we have placed some restrictions on the movement of people around on country roads and the like in Côte d'Ivoire until the election is done. And so that's had the delay of the arrival of 1 or 2 guys, but that's not going to impact the commissioning or start-up of the mine. Now financially, as I said, we capitalized $205 million of the Yaouré expenditure and paid $191 million, 72% of the budget, at the end of the month. Our commitments at $223 million are in place, which more or less means that the costs are pretty well locked in. So 84% of the capital budget has been locked in materially, reducing a risk of overruns. And as I said earlier, if there are no further delays, our stretch target of producing that first gold in December 2020 is achievable, and we're certainly doing all that we can, the contractors can do, to make that occur. The second thing I just -- I thought was worth highlighting is the excellent performance of our Sissingué mine this quarter. Now when we decided to develop Sissingué back in 2016, not everyone bought in on our business logic, and many thought that this was not a particularly great investment decision. Now we begged to differ. And since bringing the mine online in January 2018, Sissingué has outperformed all expectations and it's made a major contribution to our business not only in terms of gold production and cash flow, but also strategically insofar as it gave us geopolitical diversity and a different and less challenging set of technical risks. This quarter, Sissingué has reached new heights. And it's been achieved not only with COVID lurking in the background but also in spite of a very intense wet season. We've had something like 940 millimeters of rain on the site during the quarter. So that's pretty wet and it has made some of the mining operations slow down a little. But nevertheless, notwithstanding these challenges, during the September quarter, we produced 29,087 ounces. So that's about 42% of our total production at a production cost of USD 493 per ounce or an all-in site cost of $587 per ounce. Gold sales were around the 20-odd thousand ounce mark, and the weighted average gold sale price was $1,562 an ounce, giving a margin of USD 975 per ounce. So the notional cash flow generated from Sissingué during the quarter was around $28 million or 67% of our total cash -- net cash flow. So for 42% of the production generating 67% of the cash flow, you can see why we were keen to develop the Sissingué mine. At 96%, the mill run time was marginally better than in the June quarter when it was 94%. And the weighted average blended head grade of ore was 2.62 grams a tonne, which was also up on the prior quarter. A big improvement seen through the quarter was the throughput rate, where we ran at 176 tonne an hour, about 15% higher than the previous quarter. The improved throughput rate was achieved notwithstanding the fact that the blend of ore processed this quarter contained more of the harder fresh ore that comes from deeper in the pit than it did in the past. Now while this fresh ore did carry higher grade, recovery was slightly down on the prior quarter at 93%, as you might expect, but it was still several percentage points above our internal targets. So that was very, very good. The other very pleasing development during the quarter was the material improvement in the reconciliation of processed ore tonnes, grade and contained ounces relative to the mineral resource block model in which our mine plans are based. Now in the last couple of quarters, we saw a slight deterioration in the reconciliation. We made -- pointed out this in our last quarter. But given our prior experience, it wasn't overly surprising to us based on where we were actually mining in the ore body, and we were expecting things to turn around. During the last 3 months, this has, in fact, actually happened. And for the last 3 months, we mined 7% more tonnes at 7% higher grade than predicted by the block model. And this reverses the trend that we saw over the last couple of quarters. On the life of mine, to date basis, Sissingué has produced about 6% more tonnes of ore at a grade that was -- 96% of that predicted in the resource models, so all up about 2% more contained ounces than what was predicted. So what that means is that we're running bang on target, exactly as we had planned to do. As I said earlier on, the production costs were fairly spectacular, $493 an ounce. That's 21% lower than in the prior period. Interestingly, mining costs were up 20%, was $5.99 a tonne compared to $4.68, but that was a function of the fact that about 32% less tonnes of material were moved during the quarter as a result of that very heavy weather that I mentioned. Our processing costs were down at $15.25 a tonne largely due to the fact that we processed more tonnes during the quarter as well. Our G&A costs ran at about $1 million, $1.08 million per month or a touch up on June quarter. The costs did include several measures related to combating COVID, such as additional transport costs, meals, accommodation, et cetera. And I think all up, the costs worked out at around $13 an ounce at Sissingué for the quarter in terms of dealing with COVID. The quarterly all-in site cost of $587 was about $147 an ounce lower than the previous period. Notwithstanding the fact that we did pay higher royalty charges as a result of higher gold prices, sustaining CapEx was a lot lower this quarter at only $6 an ounce compared to the previous quarter. And that was more or less a result of the fact that with the weather, there wasn't a lot of work going on around the tailings dam or on the Fimbiasso road this quarter. So production at Sissingué was up. Costs were down. And as I said, it's a fairly credible result given all of the distractions that were placed in front of the team with COVID and the -- and seasonal, wet weather. Now the other positive initiative related to Sissingué that occurred during the quarter was the completion of the scheme of arrangement with Exore Resources that was announced last quarter. Now this bolt-on transaction was completed towards the end of September, giving us ownership of around 2,000 square kilometers of geologically prospective land in Northern Côte d'Ivoire, including the Bagoé Project that's operated -- that's located pretty close to our Sissingué mine. Now prior to us offering to acquire the company, Exore announced the JORC-compliant mineral resource at Bagoé. As part of our DD on Exore, we formed a view that the proportion of the resource was economically mineable. And since working with the company and acquiring it, we've been busy planning a confirmation drilling program at each of the Antoinette, Veronique and Juliette deposits, and they're the deposits that make up the Bagoé Project. Drilling at Veronique started on the weekend. We've got a couple of rigs operating there right now. And work that's needed to be done to prepare an environment and social impact assessment, which is a prerequisite for mining lease over the area, has been underway for a couple of weeks now. The delineation program is expected to be completed by the end of the year. And as drilling results are acquired, that will be added to the existing drill database and used for mine planning and optimization purposes. We expect to complete the definitive feasibility study for a mining operation late in March next year, so March 2021, at which time an application will be submitted for a mining lease. Now the important point about all this, of course, is that Sissingué currently has a mine life of about 3 years from the 1st of July this year. And with the acquisition of Exore's land package, including that defined mineral resource at Bagoé, we should be able to either develop the Bagoé Project into a new gold mine, potentially using Sissingué infrastructure, or alternatively delineate further mineral resources at Bagoé that can be economically mined and trucked up to the Sissingué plant for processing. Now this potentially adds materially to Sissingué's forecast mine life. And given how well the mine, the mill and team has been operating, this would be a very good thing for Perseus' shareholders. So in conclusion, as I said at the outset, the September quarter has been yet another very solid quarter for Perseus and as we predicted that it would be. We expect the December quarter to be just as good, if not better. And this should mean that the previously published market guidance should be comfortably attained in the absence of any major change of fortunes that come from left field. The December quarter started recently well at both operations. And as of the middle of this month, scheduled mill maintenance shutdowns have been completed at both operations and things are moving ahead fairly strongly. As I said, Yaouré is well and truly on the right path for achieving our stretch target of pouring first gold later this year. And now it's really a matter of head down and tail up and working like crazy to get all the necessary jobs done. Hopefully, the Ivorian elections that are scheduled for the end of the month won't throw up any unplanned challenges and also that COVID will continue to be a nonissue on the site so our fingers crossed as far as that's concerned. Exploration-wise I haven't spoken too much about that this quarter, but we have worked up some very interesting targets. And hopefully, we'll have some positive news on that front before too long. For us, we believe that at this particular time with the gold price cycle and with many companies being fully valued by the equity markets, our best strategy for growth is to work hard at proving up organic growth opportunities and to make sure that these efforts are adequately resourced. Now this is something that we have done. We've allocated people and budgets to the work, and it's all about delivering results, as it always has been, I guess. But certainly, we're very focused on doing that. Financially, we're getting stronger by the day as a result of the good production performance, reducing costs and strong gold prices. And by the end of this year, we'll have 3 operating mines, a strong balance sheet and an ambition to continue to create very material benefits for all of our shareholders and stakeholders. We trust that all of the listeners on today's call will come along on the journey with us because we think it's particularly exciting. So thanks very much for your attention. Happy now to take any questions you may have.

Thank you, Jeff. [Operator Instructions] The first question comes from Nick Herbert of Crédit Suisse. Can you provide some more detail around the Exore feasibility study scope of work, what it's assessing, and broadly how you're thinking about what those assets can contribute to the portfolio?

Well, what we're aiming to do is to prove that the resource is minable and, as I say, potentially truckable or a stand-alone operation. I mean the scope of the feasibility study is the same as any other feasibility study we're currently doing as part of this drill program, doing additional metallurgical testing, geotechnical work, et cetera, et cetera, to make sure we understand structures in the area, oxidation, et cetera, et cetera, profile, so that we can design our pit walls appropriately. We do believe that a fair bit of drilling and test work has already been done, and it's been done to a pretty reasonable standard that we're very pleased to say. So we're not reinventing the wheel necessarily here. And we're fairly confident we can get that completed by the end of March. Now as to how much it's going to add, I'm not really willing to go into that just yet mainly because we haven't done the confirmation drilling program at this stage. I mean, I think Exore's resource -- announced resource was around 0.5 million ounces, but a lot of that was inferred. And so we wouldn't be willing to make any public statements around how much of that is minable until we've done the work to be able to prove the concept. So I'm sorry, I can't really speculate -- or we're not willing to speculate, rather, on that. But suffice to say that we wouldn't be doing this if we didn't think we could make a material addition to the Sissingué operation.

Thank you. And Nick had a second question around Edikan. Can you talk through in more detail, the recent Edikan recovery challenge, plans to address that and expectations around timing for improvement in that recovery rate?

Yes. Well, we've been working very hard since March to work on that. And I was just looking at the data for October this morning, and we're running right on target in terms of our recovery. So what the issue was early in the year, as we've said to people, was that we were putting in an excess of Bokitsi ore, which was affecting the recoveries in the -- both the flotation and CIL circuits. Now what we did in the June quarter was we wound back on that component quite considerably, and that gave us an immediate improvement in the situation. What we found during the course of the June quarter and also into the September quarter and the early parts of that was having wound back Bokitsi, we were getting a good outcome, but we were also supplementing feed from the crush ore stockpile. And some of the material on that stockpile was transitional in nature. So you can't always see just visually whether the material is fresh, transitional. I mean oxide is pretty apparent. But we were getting material coming into the circuit that was once again causing some disruption to it. So what we've done is we've switched our blend feed, and we're taking a lot of the stockpiled ore as it were from the Esuajah North stockpile, which is very much a known quantity. So progressively, we've been improving the recoveries as the quarter has gone on. And we're getting good stability in the circuit, and we're very pleased with the way it's trending at the present time. And the production for the quarter was pretty reasonable, and we see no reason why it won't continue on the positive trend that it is showing at the moment.

Thank you. And the next question comes from Reg Spencer of Canaccord. Assuming existing time lines, can you remind me when you expect, excuse my transgression, Esuajah South Underground to come online?

When do we expect it to come online. Now to be very precise about that, it's going to depend on when we actually start mining operations. We were scheduled to start that mining operation in the December quarter. However, as I think we mentioned in the quarterly report, we've slowed that down a little because we want to be absolutely clear as to what the cost structure of that development is going to be. Some of the -- there have been some changes to the labor arrangements in Ghana since we did the feasibility study, and we need to be absolutely confident that the composition of the workforce as proposed by mining contractors is going to actually be allowed to operate in the country and that the productivity rates that they're claiming that they can achieve will, in fact, be achieved. The reason for that is that, of course, if you don't achieve the productivity rates that they're setting up, then the mining operation takes a lot longer, which means you're carrying overhead for a lot longer, et cetera, et cetera. So we're busily working through those things at the moment. We have been doing confirmation drilling on the resource. So that drilling should be pretty much finished about now. I think it is around the middle of this month. And by the end of this year, we will have done an updated resource model and our level of confidence in the resource will be substantially higher than what it was when we did the feasibility study. So we'll be working pretty hard during the balance of this quarter to make sure that we understand absolutely what the project offers is, and then we'll move into development pretty well straight away from there. And I think if we get -- if we were to get going in the first quarter next year, I think it will be about a year, I think, Andrew, before we start getting contribution into the -- a real contribution into the mill feed. But I stress the point. We don't want to go into that underground development with a false sense of achievement. This is our first underground operation or everything else has been open-cut to date. And we want to make sure that we know what we're doing when we embark on this exercise because we do have very definite plans to develop an underground mine at Yaouré down the track. And I think if we mess this one up, that won't give us a whole deal of confidence as far as that's concerned. So we are being a little bit conservative and people might not appreciate that, but I'm sure you will if we develop Esuajah South and make a lot of money out of it rather than the alternative.

Thank you, Jeff. There are no further questions at this time. So I'll pass back to you for any closing remarks.

Okay. Well, thanks very much. Well, look, as I said right at the outset of this presentation, I mean Perseus is in a very strong position. We've deliberately positioned ourselves to be producing and selling gold in a rising market like this, and we are doing quite well and we see no reason why the December quarter won't be as good, if not better, than the September quarter just passed. And with the excellent progress that we're making at Yaouré, we're looking forward very much to being a 3-mine operation by the end of this year. So the next time we have a quarterly call, which will be in January, I expect, Perseus will be a different company to what it is today and we will be well and truly on the way to establishing ourselves as a credible mid-tier producer. So thanks very much for your time today. We do appreciate that, and we look forward to bringing you further positive news on subsequent calls. Good day.