Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

[Audio Gap] webinar and conference call. [Operator Instructions] I'll now hand over to Perseus Mining, Managing Director and Chief Executive Jeff Quartermaine. Thank you, Jeff.

Thanks very much, Nathan, and welcome to Perseus' webinar to discuss our June '22 quarter report. Now as usual, I'm joined on the call this morning by several of my senior colleagues, including Lee-Anne de Bruin from Finance; Paul Thompson, business growth; and Jess Volich, Head of Sustainability. Our Head of Operations, Chris Woodall, is currently on leave. So he won't be joining us, but I'm confident that in his absence we'll be able to address any questions you might like to ask about our operations later in the call. Now in this regard, what I intend to do this morning is to firstly provide an overview of what Perseus achieved operationally, during the June quarter, half and full financial year, and then follow that up with a Q&A session to address any specific questions that you, the listeners, may have about recent or for that matter, future activities. I should note that our audited fiscal '22 financial report will be published on the 31st of August after our next Board meeting, at which time, details of our full year earnings, dividends, et cetera, will be made public. So that's not part of today. Now as usual, I'll keep the presentation reasonably short as all the details that you need to understand. Our performance are fully documented in the market release. But let me highlight a few key points, and then let's discuss the detail, if you wish. It seems every time that we hold a quarterly webinar like this, so much the same thing, but it really is pleasing to be able to continue reporting that Perseus has once again delivered a very strong production and cost performance this quarter, and we're now firmly positioned on the track that we promised to follow. When we release our financials in a month's time or so, there'll be further evidence of this. So in the June '22 quarter, Perseus produced 122,327 ounces of gold, which went for the half year and the full year, we produced totals of 252,850 and 494,014 ounces, respectively. Our half year and full year production was comfortably within the upper half of the guidance ranges provided to the market. And while the full year production was about 1% of our internal target of 500,000 ounces for fiscal '22, there were very good reasons for this, which I'll explain in a minute. Perhaps more importantly, in the current economic climate, our weighted average all-in site cost for the quarter of $1,004 per ounce. It was fairly healthy based on a production cost of USD 881 per ounce. This translated to all-in site costs of USD 955 per ounce for the half year. And for the full fiscal '22 financial year, USD 952 per ounce, both of which were in the bottom quartile of our market guidance ranges. Now as reported by JPMorgan in their recent June '22 Goal Sector Review, these all-in site costs compare very favorably to those -- of most of our peers on a global basis, particularly the companies here -- based here in Australia. Like everyone else, though, Perseus is battling against the global trend of rising costs, but we are managing to keep things recently in check for the time being. As if we or indeed the market need any convincing, the operating results that have been achieved this quarter clearly show that the corporate strategy that we've deliberately adopted some time ago that involved transitioning Perseus to become a multi-mine jurisdictional gold company is working and working well. This strategy has enabled us to not only materially increase our production and cash flow but to do it in a way that spreads our risk across the business. And despite plenty of challenges from both inside our business and outside, it's meant that we've been able to stay on course and deliver on our promises, which goes to the very core of the values of this company. During the quarter, our newest mine, Yaouré performed outstandingly well relative to both prior quarters and our internal targets, producing 81,150 ounces of gold at an all-in site cost of $641 per ounce, which places Yaouré well down on the list of -- in terms of the global cost curve. Sissingué with production of 12,509 ounces performed slightly ahead of our target, while Edikan with 28,668 ounces fell short of our expectations. Now there's no escaping the disappointment of Edikan's performance this quarter, but there were a range of factors that led to the result. One of which was the fact that, and we did foreshadow this during our March quarter webinar and in the March quarter report, we deliberately brought down a major preventative maintenance shutdown of the Edikan plant and lost 19 days of production or nearly 21% of available time during the quarter as a result. Fortunately, the overperformance of Yaouré more than compensated for the underperformance of Edikan, enabling the Perseus Group to once again consistently deliver another strong quarter in terms of production and accordingly in terms of costs. Now looking to the future. Our market guidance for production and costs for the December '22 half year is 240,000 to 265,000 ounces at an all-in site cost of $1,000 to $1,100 per ounce, which translates to approximately 493,000 to 518,000 ounces of gold at an all-in site cost of $9.80 to $10.25 per ounce for the full calendar '22 year. So more of the same. Now I should say that this guidance is based on our current view of the world and comes with the caveat that we don't own a crystal ball. I suspect that there could certainly be some surprises in store for us all, but we'll see. It would be the easiest thing in the world for us to provide a market guidance that we could guarantee we would make. But it would be totally meaningless, and we don't believe that doing that makes any sense. What we will do is work extremely hard to make sure that we control all of the things that we can control and that we deliver in line with this guidance in the coming periods. I am happy to report, though, that our strong recent performance has continued in the month of July, and this does bode well for the current quarter. Since Edikan resumed milling operations in mid-June following the maintenance shut, the operation has been running very well, and it appears as if the challenges that we faced for most of the first half of this year are behind us. Yaouré and Sissingué are also continuing to deliver as planned. And so far, things are looking good for another solid quarter right across the group. Now, I should note that in conducting our mining and exploration activities across the company, we have generally continued to do this in a manner that's in line with the sustainability standards that we've adopted. The exact metrics of our ESG performance are documented in full in our quarterly report. However, it's worth highlighting just a few of these while we're on the call. Now in terms of safety, despite a tragic and very regrettable incident at Yaouré late in the quarter that resulted in the death of an employee of one of our contractors, safety performance across our operations generally improved during the quarter with our total recordable injury frequency rates, TRIFR, reducing from 1.45 at the end of March to to 1.21 at the end of June, lower than the fiscal '22 target of 1.3. Lost time injury frequency across the group also reduced from 0.36 to 0.17. Subsequent to the end of the quarter, Sissingué achieved another very significant safety milestone, celebrating 6 million man hours or person hours or about, I think it was 1,146 days without a lost time incident. So that's a pretty credible performance when all said and done on the safety product, Sissingué. Now on the social front, Perseus' significant economic contribution to our host countries of Ghana and Cote d'Ivoire continued, and for fiscal '22, amounted to around USD 495 million or 61% of our revenue. This included USD 394 million paid to local suppliers, representing 81% of our procurement; USD 33 million paid as salaries and wages to local employees; USD 67 million in payments to government as taxes, royalties and other payments and around about USD 4 million in U.S. in social investment. Now these numbers are actually quite important. People will hear sometimes government officials whose budgets are under pressure for one reason or another make statements of the effect that mining companies or foreign investors don't pay enough dividends to their host governments or don't do enough to help the country. This is often a very shallow and, in some cases, self-serving observation, if I may say so, that conveniently overlooks the enormous injection of hard currency injected by companies like Perseus into their economies. Now we're very proud to be able to contribute in this way even if we don't usually take to the ground stand to highlight the work that we do. But it is important. Now local and national employment is also extremely important, and that's been maintained at above 95% of our total workforce for the quarter. And our gender balance across the group is is [ 13% ] female, 87% male, which given the industry in which we operate, but more particularly the cultural orientation of our host countries is reasonable. I should note that the situation is quite different in our corporate office in Australia, where female to male split is 31% to 69%. And within my senior management team, it's actually 40-60, once again, reflecting the cultural orientation of the jurisdiction as much as anything. Environmentally, in absolute terms, our total Scope 1 and Scope 2 greenhouse gas emissions have increased during the year as we've increased our total gold production. However, emissions intensity stated on a per ounce of gold basis have remained quite steady. Now also following interest from additional vendors and also resulting from our preliminary thinking about Power Solutions in Sudan, Perseus is now in the process of updating our evaluation of the potential use of solar power across the group, and any future actions in this area will be dictated by the facts revealed by this study. And finally, on the environmental front, I guess it's worth noting that across all of our activities, we've experienced 0 environmental events or significant tailings integrity issues during the period. So on the -- as a whole on the ESG front, we are performing reasonably well. Despite, as I said, the tragic accident at Yaouré, we are deeply committed to continuing to incrementally improve our ESG performance relative to our internal standards. And in this respect, safety and the well-being of our employees is rightfully at the top of the priority list. Now turning to financial matters. By selling our gold at an average price of USD 1,705 per ounce this quarter, we generated an average cash margin of USD 731, roughly AUD 1,060 per ounce for every ounce of gold produced, and that resulted in notional operating cash flow of USD 85 million or AUD 123 million for the quarter. And that amounted to USD 361 million or AUD 523 million for the full financial year. Now of this amount, nearly 95% of it was generated by Ivorian mines with the remainder coming from the Ghanaian operation. Our gross cash and bullion on hand at the end of the quarter amounted to USD 328 million. After deducting our corporate debt of $50 million, our net cash and bullion balance was USD 278 million, an increase in net cash of USD 50 million since the end of the March quarter. Now just to put what I've said into context, I note our notional cash flow from group operations during the quarter was USD 85 million, and a net increase in cash at the end of the quarter was USD 50 million. The $35 million difference between the 2 amounts reflects expenditure on business growth activities, including both organic growth and net transaction costs associated with the recent acquisition of Orca Gold, development capital, admin, debt servicing, taxation, dividends to shareholders and a bit of FX movement and the like. Now for those of you who are interested, the specific numbers associated with each of these items are shown in a detailed waterfall chart in the quarterly report, and I would refer you to that. Now speaking of our business growth activities. This is another area in which we've been very busy and pleasingly productive this quarter. Our offer to Orca shareholders to acquire all of the outstanding shares in their company was formally accepted in the general meeting of shareholders and in the Canadian courts in late May, clearing the way for us to start seriously planning our next steps in relation to the development of the Block 14 Gold Project in Sudan that we believe is capable of being developed into our next large-scale, long-life gold mining operation. A lot of preparatory work is underway on this front. And reflecting the words of [ Phil Marshall Ronel ] who once said "Time spent in reconnaissance is seldom wasted" and that definitely applies here. We are getting to understand the law of the land. And in fact, over the weekend, some important meetings are held with government official in [ Khartum ] to discuss the details of how we can cooperate to actually deliver this project in a cost effective and an efficient manner. That is to say -- that is to do what we said we were going to do, and that's a familiar phrase in the Perseus world. I'll tell that these discussions were indeed very, very encouraging, and we're now looking forward to starting work on the ground with an infill drilling program in Block 4 later this year as well as undertaking confirmatory work on the water aquifer in Area 5 that will ultimately supply water for the operations when they're up and running. We're also starting to move forward on the front end engineering and design of the project, and this work will accelerate in coming quarters. We have been broadly targeting around the middle of next year for a final investment decision for the development of Block 14. Being conservative, it's probably safer to say second half of 2023 on the basis that we are charting new orders by being the first industrial scale goldmine development incident. And working through logistics and other details does that take some time, particularly when our hosts are not that familiar with the processes that are involved in developing a very large-scale operation such as we have in mind. Also, as announced recently, through organic means, based on exploration success, we've made some really strong progress towards being able to sustain the sort of production level that we're guiding for the next half year and do that out towards the end of the decade. You'll recall we recently made a market release, which you are encouraged to read on the work that has been completed at the Nkosuo deposit, which is located about 7 kilometers from Edikan's mill In Ghana. Now in summary, what we announced was that we delineated an indicated mineral resource at Nkosuo of about 422,000 ounces of contained gold with some additional inferred mineral resources as well. We also completed a feasibility study on the project, resulting in the estimation of a probable ore reserve grading about 1.04 grams a tonne, which is consistent with the material that we're processing and containing 332,000 ounces of gold. Now based on this study, processing of the Nkosuo ore reserves in the Edikan mill is expected to increase the life of Edikan operation by 18 to 24 months or so extending the mine life out to the end of fiscal '27. It will take us between 18 and 24 months to convert the Agyakusu exploration license to a mining lease and to obtain the necessary environmental permit for Nkosuo. But after that, we'd be in a position to start mining and trucking ore to the mill for processing. The recent delineation of this mineable deposit at Nkosuo is actually a very significant achievement for Perseus as Nkosuo is our first discovery and what we believe is a mineralized zone that stretches across 3 contiguous, separate exploration licenses in the area to the northwest of Edikan. We recently acquired the Agyakusu license on which Nkosuo is located, and we also hold options to explore and acquire the other 2 licenses in the fullness of time if we choose to do that. We are committed to intensive exploration of this zone though, expecting that Nkosuo will turn out to be the first of several discoveries in the area. And if this is the case, further extensions of the Edikan operation beyond fiscal 2027 will be a likely outcome. Having recently invested time and money in upgrading the Edikan plant as we did this quarter, Edikan has the potential to once again become a very important piece of our diversified asset portfolio. Now while on the subject of organic growth, I should also mention that we have continued to make excellent progress on the delineation of a large additional mineral resource at Yaouré that can be economically mined using underground mining techniques. Now I don't want to prematurely disclose details of this other than to say that our formal mineral resources and reserve statement will be published in the September quarter, along with the feasibility study for developing an underground operation. That will also materially extend the life of the very profitable Yaouré gold mine. Now looking further ahead at Yaouré, it's also worth mentioning that we have started a program of very deep holes that extend below the CMA structure to investigate some apparent structures that were identified by the 3-dimensional seismic survey of the area that we conducted a couple of years ago. Now it's early days for sure, but I suspect that more will be set of this as drill results come to hand in coming months, but all of this together suggests that the Yaouré mine is going to be around for quite some time. So in conclusion, as I said at the start of the call, the June quarter, June '22 quarter, has been yet another very good quarter for Perseus in terms of gold production, all-in site cost and cash flow generation and business development as, of course, has been the June half year and the full June '22 financial year. We have delivered gold production and all-in site costs comfortably within stated guidance ranges and, in doing so, have outperformed a lot of our peer group. Our gold production rate is solid and slightly above the 250,000 ounces of gold per half year mark, meaning that our stated aim of 500,000 ounces of gold per year at a margin of not less than USD 400 per ounce is sustainable. Our all-in site costs are currently very competitive in terms of our global peers, and we're managing our business successfully and financially in a pretty tough economic environment, as we're all aware. We've got some excellent growth opportunities in front of us. But as importantly, we have the team to successfully execute and to unlock value as we have demonstrated several times in the past. Now in an equity market sense, while our share price has come off the highest recorded early in the June quarter, we are holding up reasonably well relative to market peers, which I'd like to think is recognition of the fact that Perseus is now regarded by the market that's a reliably consistent mid-tier gold company that can be relied upon to do what it says it's going to do. So thanks very much for your attention today. This brings my presentation to a close, and now my colleagues and I are happy to take any questions that you may have.

Thank you, Jeff. Your first group of questions comes from Patrick Collier at Credit Suisse. First one is, can you please explain on the exact challenges -- what the exact challenges are from processing the sedimentary material at Sissingué?

Well, the exact challenge is -- the main challenge is that it slows the throughput rate down. And so the amount of material going into the mill has been lower than it was -- has been in the past. I think it's also fair to say that the grade is not the same as what we were mining last year and the year prior to that, where we were going through the very high-grade zone. So I guess a combination of grade and throughput rates are the real impact of that sedimentary material.

Thank you. Second question. Strip ratios have declined across the group. What's driven this? And what should we expect for the December half?

Well, they have declined across the group because we're going further into the existing pits and the like. But going into the December half and into the next financial year in total, I should say that Sissingué in particular, there will be an increase in stripping ratio as we start to open up the Fimbiasso pit, et cetera, et cetera. So yes, we -- it's just the sequence in which we're mining, there's nothing terribly magical about it. But when you go and open up new pits, you do have to remove a waste material, and that impacts to pressure. I should say that on Nkosuo, one of the attractions of the Nkosuo deposit is that the strip ratio on that is very low. So when we get that into the mine plan in a couple of years' time, that will be a big plus for us.

Third question, can you give a sense of how much fuel-related inflation you're seeing in your cost base? And do you have any hedging or fixed contracts to protect against this?

Okay. Well, fuel is an interesting one. The cost of fuel in Ghana at the moment is about USD 1.50 a liter, which is not too much different from Australia. Now in -- and that has risen over the course of the last 6 months or so. In Cote d'Ivoire, the government there subsidizes fuel cost, and so the cost there has been running around just a touch under USD 1 a liter for some time now. Now we do expect that that the government's ability to continue that subsidy is -- will decline in coming periods, and it is likely to be that we will see some increases in the amount of what we're paying for our fuel there. And to answering the questions, no, we don't hedge the oil price. We've looked at this on many, many occasions. But there's an imperfect hedge applying between, say, the Brent or WTI and the price that we actually pay in West Africa, particularly given that the government has a fair hand in the pricing of fuel there. So if you're going to try and hedge it, you're going to -- someone's going to be taking basis risk, and that's not our business.

Your next question comes from Andrew Bowler at Macquarie. Can you talk to what the reason behind the preventative shutdown at Edikan? Was it planned shut -- was it a planned shutdown that found fault? Or was it always planned to be that long?

It was always planned to be a lengthy shutdown. In fact, what we did do was it was previously scheduled to occur this financial year, and we decided to bring it forward into the June financial year purely and simply because we were recognizing that there was some wearing on the girth gear. And the longer that continued, the greater the risk of catastrophic failure. Now it would have been very easy for us to have deferred it to this financial year and reported production well over the 500,000 ounce mark, and that would have been very jolly. However, had something gone wrong we would have quite rightly been held to account for, for not acting sooner. So we just took the decision to close it down earlier and to do the work needed to be done. There were a few -- some of the work that was being done was adjusting work that was done at the start of the construction of this thing. So we went back a fair way. And what it also did was -- and this is a really important point, I think, is that what it also did was it allowed us to do a catch-up on all maintenance right across the site. This is not dissimilar to what occurred in 2016, actually, where we had a significant shut in 2016. But by being able to catch up on all of our maintenance and get ahead of the curve, it meant that the next 4 or 5 years, we're extremely good at Edikan now in terms of the operation of the mill. We've used the opportunity this time around to do the same thing. And certainly, the results that we're seeing in terms of the performance since the mill came back online are extremely encouraging. So we're seeing good throughput rates, very good run time. Recoveries and grade are in line with what we were expecting to see. So look, it did cost us a bit. There's no doubt about that, but we think that, that was money well spent in terms of the future of the company and particularly the future of Edikan operation.

Your next question comes from Reg Spencer at Canaccord. He said, understand that there is an 18-month lead time for permits at Nkosuo. But would this drop immediately into the production plan given the grades? Are there considerations for mine planning for existing Edikan reserves?

I'm not quite sure what the last one says. But yes, we are doing mine planning at the present time, and we would we would get it into the mill recently quickly. I would think once we have the licensing [ impact ]. I think at this stage of the game, the scheduling has it coming in and about -- I think it's about 2 or 3 years, 2.5 years' time from now. But look, we'll make adjustments as we go forward. The timing on the licensing is not 100% certain by any stretch of the imagination. Although having said that, we did have a very productive meeting with the Head of the Minerals Commission in the [ indiscernible] last week or the week before when it was, and he's given a very strong commitment to move this thing forward as promptly as he can because it's clearly in the interest of the -- of the government and in the -- of the surrounding community to have the Edikan mine going for as long as it can possibly achieve. So we're all similarly motivated in that regard.

And secondly from Reg, is the potential reduction or removal of subsidies in CDI factored into the first half financial '23 guidance?

I believe that we have made an estimate of the price impact. Exactly -- the exact amount off the top of my head, I can't recall. But look, we're watching that situation fairly carefully. We're comfortable with the guidance that we've given. We've looked at it very carefully. We believe that we can manage within that guidance range. We can't control the uncontrollable, but we can certainly control a lot of what we do. And I think the challenge for us as a company is to make sure that we don't roll over and say, "Oh, gee, the world is pretty tough, and the cost will be what they'll be." The cost will be what we make them to a very large degree. So that is the challenge for us. And look, at the end of the day, we fail to meet guidance because of some unexpected event, well, so be it. But what we will do is we can give a commitment to our shareholders that we'll be doing everything within our power to keep a lid on the costs.

And your next question comes from [ Alexander Pat ] at Citi. He's congratulated you on another strong quarter and then asked at Yaouré, what has been the main driver for the plus 1 million tonnes milled over the past 2 quarters? Is this run rate consistent with long-term projections?

Yes. Look, I mean the -- right across the board, the Yaouré plant is performing slightly better than what we were anticipating it would do. I mean -- and I've got to say that's fairly common with the plant -- the local podium plants. I mean, certainly, Sissingué has been running above nameplate from day 1 as Yaouré, I guess. So we're reasonably comfortable with the performance, and we expect that to continue. I mean there will over a period of time be different ore types put through the mill, which will impact throughput rates and things of that nature. But now, Yaouré is going exceptionally well. And we see no reason why we can't maintain levels around this area, throughput rates, et cetera, going into the future. I will say this, though, that, look, the grade is going to go up and down over a period of time, and there will be some periods where the grade that we process will be lower than what we've done this quarter, which means that we won't be producing quite as much gold. But aside from that, the other factor is run time, throughput rates, recoveries. Those things are things that we can control, and we don't see any reason why we should see any decline from where we are at the present time.

Thank you. There are no further questions at this time, so I'll now hand back to Jeff for closing remarks.

Okay. Well, look, thanks very much, Nathan. And thanks, listeners, for your attention. As I said, it's been a fairly strong quarter, but we are looking to the future with some optimism and looking forward to delivering a similar set of strong results again next time we speak. Thank you very much.