Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

Good morning, and welcome to the Perseus Mining Investor Webinar and Conference Call. [Operator Instructions]. I'll now hand over to Perseus' CEO and Managing Director, Jeff Quartermaine. Thank you, Jeff.

Thanks very much, Nathan, and welcome, everybody, to Perseus Mining's webinar to discuss our September '22 quarter report. Now as usual, today, I'm joined on this call by several of my senior colleagues, including Lee-Anne de Bruin, Finance; Jess Volich, Sustainability; and Phil Russo in Investor Relations. And they'll all be available to answer specific questions within their area of expertise later on. What I plan to do this morning though is, firstly, to provide a brief overview of what Perseus has achieved operationally during the September 2022 quarter, and then follow that up with the Q&A session. I'll keep my presentation brief, as all the details that you need to understand our performance this quarter are fully documented in the market release that was published earlier today, but let me highlight a few key points, and then we can discuss the detail, if you wish. So once again, Perseus has delivered another strong production and cost performance this quarter, record gold production, in fact, and we're positioned to not only achieve our December half-year production guidance, but if things continue to plan, we should stand a pretty good chance of outperforming the guidance range entirely. In the September '22 quarter, Perseus produced 137,460 ounces of gold, 12% more than in the June quarter and nearly 7,000 ounces more than our previous best quarterly result, which was recorded in the March quarter this year. Perhaps more importantly, in the current economic climate, weighted average all-in site cost for the quarter of USD 879 per ounce was recorded. Now this is based on a weighted average production cost of USD 762 per ounce. This all-in site cost, which was the second-best quarterly all-in site cost on record for Perseus, I think the best was way back in March 2019. It's something like 12% lower than the June quarter and certainly places Perseus towards the bottom end of the global cost curve, a position that may not have been associated with Perseus a few years ago. And once again, we're well on track to achieve guidance. That's something that not everybody is able to claim at the moment. Like everybody else in the mining industry, though, Perseus is battling against the global trend of rising costs, but we are managing to keep things reasonably in check for the time being and long may that continue. Now as I've said in the past, the strong performance by Perseus over the last few years is a clear vindication of our corporate strategy, which was to transform us into a multi-mine, multi-jurisdiction business as rapidly as possible. This strategy has enabled us to not only materially increase our production and cash flow, but also to reduce the volatility of our performance by spreading our risk across 3 operations. Despite plenty of challenges from both within the business and outside, the strategy of diversification has enabled us to stay on course and to keep delivering on our promises, which goes to the very core of the values of this company. Now in the past few quarters, our Yaouré mine has been the standout performer. This quarter, once again, it's continued in this manner, albeit off the record highs of last quarter, producing 71,469 ounces of gold at an all-in site cost of USD 658 per ounce. And this places Yaouré well down the list in terms of the global cost curve. The star performer this quarter, though, has been the Edikan mine. It's been a while since I could make this statement. But this quarter, Edikan has overcome the challenges of run time, grade and recovery that it experienced in recent quarters and produced 52,127 ounces of gold. That's 82% more than last quarter, at an all-in site cost of USD 1,060 per ounce, which is a vast improvement on the cost of USD 1,859 per ounce recorded in June. Now full credit goes to our team at Edikan, led by Stephen Ndede, and also Chief Operating Officer, Chris Woodall, who like me has ridden every bump in the track at Edikan over the last few years. Last but not least, of course, has been our Sissingué mine where an improved performance was also recorded this quarter. Now in the September quarter, Sissingué has produced 13,864 ounces of gold at an all-in site cost of USD 1,336. Both of these metrics were better than last quarter and clearly demonstrate that the small mine that many thought should never have been built continues to punch above its weight and make a sound contribution to our bottom line. So all in all, it's been another very good quarter on all 3 of our sites. And looking to the future, our market guidance for production and costs for the December half year of 240,000 to 265,000 ounces, at an all-in site cost of $1,000 to $1,100 per ounce, looks very achievable at this time. And this should mean that our calendar year guidance of 493,000 to 518,000 ounces of gold at an all-in site cost of $980 to $1,025 is also well within our reach. Now I should note that in conducting all of our mining exploration activities across the company, we've sought to do this in a manner that is in line with the global sustainability standards that we've adopted. The exact metrics of our ESG performance are documented in full in the quarterly report and also in our annual sustainability report that was released to the market last Friday. It is, however, worth highlighting just a few of the achievements from this quarter on this call. In terms of safety, our safety performance across our operations has generally improved. Our TRIFR, total recordable injury frequency rates are continuing on a downward trend, reducing from 1.45 at the end of March to 1.21 at the end of June down to 1.19 this quarter. And our lost time injury frequency rate across the group remained rather at a fairly credible 0.26. On the social front, Perseus has contributed the economic contribution to our host countries that we've been doing in the past. And in this quarter, it amounted to around USD 116 million. This included approximately $87 million paid to local suppliers, representing about 78% of our procurement, $8 million in salaries and wages to local employees, about USD 21 million in payments to the government in the form of taxes, royalties, et cetera, and about $1 million in social investment. These sums of money are actually quite important to our host countries, and we're very proud to be able to contribute in this way, even if we don't usually take to the grandstand to highlight the work we do. Local and national employment that's been maintained at above the 95% level of our total workforce, and our gender balance across the group is fairly stable, around 14% female, 86% male, which given the industry in which we operated, but more particularly, the cultural setting of our host countries is a reasonable outcome. I should note the situation is different in our corporate office, where the female-to-male split is about 31:69 and then our management team, 40:60. So I think that's more of a reflection of the cultural orientation of Australia as opposed to that of our host countries in Africa. Now environmentally, we've had no incidents of any type during the quarter. And in absolute terms, our Scope 1 and Score 2 greenhouse gas emissions have actually reduced by about 5% from 0.55% at the end of last quarter to 0.5% at the end of this quarter. And this has largely come about as a result of Edikan replacing its grid power with power generated on-site using natural gas as an energy source. So on the ESG front as a whole, we're performing reasonably well, and we remain committed to continuing -- to incrementally improve our performance in this area relative to the standards which we've set for ourselves that align to the internationally accepted standards in the most instances. Now I should just make a note that we will be hosting a separate webinar on the 3rd of November, I think it is to discuss the fiscal '22 sustainability report. And for those who would like to do a deeper dive into this area, please join us on that occasion, and we'll explain things in full. Now turning to financial matters. At the end of the quarter, our gross cash and bullion on hand amounted to USD 354 million. Now after deducting our outstanding corporate debt of $25 million, our net cash and bullion balance was USD 329 million, an increase of -- in net cash of $51 million relative to the end of the June quarter. Now it should be noted that our cash and bullion on hand of $354 million comprised of cash of $197 million and 93,634 ounces of bullion on hand valued at a spot price of $1,672, giving a value of USD 156.5 million. Now of the 93,634 ounces of bullion on hand, 67,261 ounces of the gold was held in purchases metal account with the balance either in transit or on a site. Now I should make the point that the 67,261 ounces in the metal account is gold that was produced this quarter and is designated for sale under existing forward sale agreements at an average price of $1,780 per ounce, thus eliminating any price risk on this metal. Those sales contracts will be completed in the December quarter when all sales will be brought to account. Now before anyone asks the question of why we didn't close out the hedge contracts prior to the end of the quarter and put the cash on the balance sheet, there's nothing particularly notable about this. It simply goes to the issue of managing our capital balances and cash flows, and making sure that all approvals are in place to move funds between onshore and offshore bank accounts before we make that move. So -- but by the end of '22, by the end of this calendar year, all of the designated hedges will be closed out and our year-end cash balance will reflect the receipt of some fairly significant amounts of cash during the quarter. I mean I note for instance, that the hedge price of $1,780 per ounce on the 60-odd-thousand ounces is above the spot price at which they were valued on the balance sheet that I just spoke of. Now speaking of hedging, in addition to the 67,261 ounces that we've got, sub presold under that forward arrangement that I mentioned, we also have other forward sale contracts in place, covering a further 336,000 odd ounces of gold -- of future gold production, at a weighted average cost of about USD 1,890 per ounce. Now this represents about 23% of our production on a -- forward production on a 3-year rolling basis. And it's important as even if the gold price weakens below the current levels as a result of the strong U.S. dollar, Perseus' projected cash flows are to a fair extent underwritten and this is a very healthy financial position to be in. To give listeners an understanding of just how much cash we are currently generating in the company, our notional cash flow this quarter was around USD 112 million. This is obviously different to the $51 million net increase in cash. They're not the same thing, so I don't confuse that. I don't want to unnecessarily complicate it, but notional cash flow is somewhat theoretical as it doesn't take into account the timing of payments and the timing of receipts. But it's safe to say that right now, Perseus is generating a lot of cash and is in a very strong position to fund all of its activities, including exploration and the development of new projects, and the continuation of our dividend policy from existing cash balances deadline any future cash flows. Now speaking of business growth activities. This is another area in which we've been very busy and pleasingly productive this quarter. Speaking firstly about our latest acquisition, namely the Block 14 Project in Sudan, where we recently awarded a 100,000 meter drilling program to Capital Drilling, a highly regarded international drilling company. They're in the progress -- process at the moment of mobilizing equipment to site, and we would like to think that they'll start drilling before the end of this month. Now their designated task is firstly to perform infill drilling on the GSS deposit to convert some inferred mineral resources into measured and indicated resources that can be incorporated into the Ore Reserve within the mine plan. In addition, they're also tasked with performing sterilization drilling to ensure that in their enthusiasm to locate waste dumps and tailings dumps as close as possible to infrastructure, the previous owners of the property haven't sterilized any valuable mineral deposits. We've also commissioned our friends at Lycopodium to undertake a front-end engineering and design study, FEED study, on Block 14. As it happens, like I prepared the definitive feasibility study for the previous owner of the property. So they're very familiar with the project. But perhaps more importantly, they are also very familiar with the exacting standards that Perseus will require for this project to be built. We've learned a lot from the development of Sissingué and Yaouré over the last 5 years or so, and all of these lessons will be applied when it comes to the final design of the Block 14 mine development. Now as part of that FEED study, we'll also be undertaking confirmatory work on the water aquifer in Area 5. That's about [80 k] from the main deposit. And that area will ultimately play water to the Block 14 operations when they're up and running. Now this work has been assigned a higher priority given the importance of water supplies in this part of the world. Once again, the contractors that we plan to use have a lot of experience in Sudan and several of their consultants have, in fact, worked on the original study for the previous ones. And we're looking forward to early confirmation of the capacity of the aquifer to satisfy not only all of our water requirements but also for there to be excess water that we can share with any communities in the area. I must say there aren't too many communities in the area, but if indeed, there are people living there, then they will be able to gain access to that. Now starting from the above. There's a lot of preparatory work happening on the ground in Sudan. Things are tracking very, very well. And the one thing that does deserve comment is the terrific support that we're receiving from key ministers and their departments within the Sudanese government. A small number of people have expressed reservations about our investment in Sudan based on their knowledge of the country's recent history. But I can genuinely say that we've received excellent -- an excellent level of support from the government. We clearly acknowledge that Perseus and the government are joined at the hip on this project and that a successful development will be of enormous value to both parties. We're also very comfortable with backing our ability to set up operations in a new country just as we did in Côte d'Ivoire with the development of Sissingué and Yaouré. Now at this time, we're targeting making the final investment decision for the Block 14 Gold Mine at about this time next year, if not a little bit before. Being conservative, it's probably safer to say in the second half of 2023. On the basis that this, we'll be the very first industrial-scale gold mine development in Sudan, and there will be no prices for us committing capital prematurely. This project and all of the other opportunities that are starting to emerge as a result of our first-mover advantage into Sudan are way too important to mess up. And so we'll take whatever time is required to make sure that this project is a fantastic success, not only for Perseus, but also for the people of Sudan. Now also, as we've recently announced, we've had exploration success close to our existing infrastructure in West Africa and making pleasing progress towards being able to sustain our targeted level of production of 500,000 ounces of gold per year out towards the end of the decade. And that's without taking into account any M&A or greenfield development activities. During the quarter, we issued a market release detailing the results of work that are being completed at the Nkosuo deposit located about 7 kilometers from the Edikan mill in Ghana. In summary, we announced an indicated mineral resource of 422,000 ounces and a bit more inferred. We've done a feasibility study on the project and that resulted in probable ore reserves of about 332,000 ounces of gold. Based on this study, the processing of the Nkosuo ore reserves in the Edikan mill is expected to increase the life of the Edikan operation by something like 18 to 24 months, extending the life as we see it at the moment out towards the end of fiscal '27. We've recently applied to the Ghana Minerals Commission for the land that was -- that is covered by the Agyakusu exploration license to be incorporated into our existing Nanakaw mining lease. Discussions on this front are progressing well and should result in ore from Nkosuo being mined and trucked to Edikan for processing sooner rather than later. The delineation of this mineable deposit at Nkosuo is actually a significant achievement for Perseus, as Nkosuo is our first discovery on what we believe is a mineralized zone that stretches across 3 separate exploration license areas to the north of Edikan -- northwest of Edikan. In addition to recently exercising our option to buy the Agyakusu license on which Nkosuo is located, we've also given a notice of intent to exercise options to acquire the other 2 license areas that are contiguous to our land packages as both of these have similar potential to the Agyakusu license. So that's pretty exciting. We are committed to intensive exploration of this zone, expecting that Nkosuo will turn out to be one of -- will be the first of several discoveries in the area. And if this is the case, we can expect to see further extensions to the life of the Edikan operation coming up. And having recently invested a lot of time and effort and money into upgrading the Edikan plant that yielded the very good results this quarter, Edikan certainly has the potential to once again become an important part of our asset portfolio. While on the subject of organic growth, I should also mention that we've continued to make excellent progress on the delineation of a large additional mineral resource at Yaouré that can be mined economically using underground techniques -- underground mining techniques. During the quarter, we announced a maiden ore reserve of about 259 million -- sorry, 259,000 ounces on the initial stages of mining of the CMA ore body by underground methods. The pre-feasibility study that we have completed on the drilled-out portion of this deposit, it extends about 200 meters down dip and it's proven to be both economic and technically viable to conduct that mining operation under the existing pit. We've got more widely space drilling below the pit that shows that the mineralization extends quite a lot further. In fact, the total mineral resource at the present time is about 1 million ounces. We will be drilling out the next 300 meters of the structure during the course of this year. So taking us down $500,000, and we do expect to be able to put that into the reserve statement towards the end of this year. In addition to that, we've also got some -- returned some fairly encouraging results from exploration drilling of some deep holes below the non-mineralization. And that is certainly very interesting that we've been inspired to do that from a -- the results of a 3-dimensional seismic survey that clearly shows us that something is down there. We're not quite sure what it is, but it's certainly giving us fairly a high level of encouragement that further expansion of the CMA underground operation is very possible. It is early days as far as the CMA underground project is concerned. But I suspect that more will be said of this as the drill results come in the hand in coming months. So in conclusion, as I said at the start of the call, the September quarter has been another outstanding quarter for Perseus on all fronts, including gold production, all-in site costs, cash flow generation and business development. We've delivered gold production and all-in site costs. It puts us well on track to achieve, if not exceed, stated guidance ranges. And in doing so, we've outperformed a lot of our peers. Our all-in site costs are currently very competitive in terms of global measures. And we are managing our business successfully, even though we are operating in a fairly tough economic environment at the present time. Perseus has excellent growth potential in front of us. But importantly, we have the team and the existing financial means to successfully execute and to unlock value as we have demonstrated several times in the recent past. In an equity market sense, our share price has been holding up fairly nicely in the face of some pretty stiff headwinds coming from the strength of the U.S. dollar, but we are performing relatively well compared to the rest of the market, which I'd like to think is a recognition of the strong track record of achievement that we built up over the last few years. So as I say, a strong quarter for Perseus. We're very pleased with the way things are tracking and looking forward to repeating this in future periods. So thanks very much for your attention today. This brings my presentation to a close. And then my colleagues and I are happy to take any questions that you might have. Thank you.

Thanks, Jeff. [Operator Instructions] Your first question comes from Mike Millikan at Euroz Hartleys. His question is regarding the uplift at Edikan in terms of mill head grades and recoveries. He has asked, is this all attributable to the maintenance completed last quarter. What improvements were made? And should we expect this going -- to continue going forward?

The short answer is no. It really wasn't related to the main purpose of the maintenance shutdown, which was to replace [indiscernible]. The improvements are the result of we've moved further down in the ore body, so we've managed to eliminate some poor reconciliation, particularly using tighter grade control methods. And the other factor on recovery was that we cleaned out the CIL tanks during that well, we were shut down and we've managed to make that process a whole lot better. As do it -- going forward, most certainly, we do expect to see this to be the norm in the future.

Thank you, Jeff. Your next question comes from Reg Spencer at Canaccord.

Congratulations on a fabulous quarter. It's just great to see. My first question relates to Yaouré. Jeff. I know you didn't necessarily -- sorry, if we go back to that maiden reserve announcement very deep in the JORC tables, you did outline some production parameters there, which included 720,000 tonnes per annum of throughput, which based on that initial reserve would give you an initial 3-year mine life, that material in that JORC table also highlighted all-in sustaining cost of $1,250 to $1,300 an ounce all-in sustaining cost. Are you able to give me an idea of how we should think about the Yaouré underground scheduled relative to the open pit, given the open pit all-in sustaining costs while being lower grade are actually also lower cost?

Well, let me address that point. That's a good one that you've raised actually. That cost incorporates the capital cost of development of that underground operation. So all of the costs on the underground operation have been attributed to that first 200 meters. So as we go further deeper into the structure, the infrastructure will already be in place, and those ounces won't carry that incremental cost. So as we go deeper, that cost is going to average down quite significantly, I would think. So that's point one. As to when it's coming into the mine plan, we're working through that specifically at the moment. But what the thinking is just in broad terms, in the original mine plan for Yaouré, I think the higher grade ore from the CMA pit started to decline around year 5 or 5.5, and then we'd move over to Yaouré pit, which is lower grade. And as a result of that, the production profile would have fallen. However, what we'll be doing now is opening up that underground operation, bringing back high-grade material from that, and then blending that with the lower-grade material from the Yaouré. So we'll be able to maintain the current levels of production, which broadly are in the range of 250,000 to 300,000 ounces a year. I mean it's closer to 300,000 last year, for instance. But we'll be able to maintain that sort of level of production for quite a few more years to come, certainly out towards the end of the decade. And as the underground development continues and as we continue to find more satellite pits adjacent to the infrastructure, and I think there's a very high chance of that happening. The Yaouré operation as a whole, which will combine both open pit and underground mining will continue for quite a number of years to come.

That's very useful, Jeff. You guys released some exploration results for some of that deeper step actually the underground there, which was pretty -- well, the results were very good. Is there any more updates with respect to your ongoing debt extensions or down debt extensions?

Not that I can really recall specifically off the top of my head. I mean there's clearly something down there, some alteration that we are getting grade in variance intercepts. But I mean, we weren't expecting to make a bonanza of discovery offer. What we are doing is collecting very valuable information that will feed back into our structural model, which will then inform future drilling programs. So look, this is not going to -- we're not going to be announcing bonanzas every time we make an announcement. This is all part of a long-term plan. And I think that the results overall speak for themselves. But it is going to take a bit of time to pull all this together, but it's certainly looking extremely promising right now.

That certainly is. Next question relates to Block 14. Are you able to let us know how much expenditure is planned for Block 14, because that's quite a large drilling program granted a lot of that sterilization drilling? What the expenditure might be for Block 14 between now and H2?

Look, that will very -- well, actually, that drilling program is 100,000 meters, and it's over 18 months. So it'll continue for a while. Look, the amount of expenditure is going to depend on the level of rate of progress that we make. I mean the sort of things that we would like to do before we start construction, for instance, would be to put in the water pipeline and borefield. So that's about -- I think it's about $20-odd million, if I remember correctly. And also, we need to upgrade the camp, because once we start constructing, we're going to need to be housing quite a lot more people than we're housing through these exploration phases. Now the decision to invest is incremental capital will be strictly related to progress that we make in the country. Now we are making very good progress, as I said. But we'll sort of hold fire on those commitments until we're absolutely certain that this project is going to go forward in the way that we envisage. Because if we've learned nothing else over the last 10 years, what we have learned is that once you make a commitment and start spending money, you certainly lose any leverage that you might have in terms of negotiating with local communities and governments and things of that nature. So we're working through this methodically, and we'll make appropriate announcements as we make those steps forward.

That's very useful. Congratulations on a great quarter.

Your next question comes from Patrick Collier at Crédit Suisse.

Congratulations on a strong quarter. My first question is just on the decision not to change guidance, but I appreciate there's probably some conservatism there. But is there anything you're expecting that could change in the second quarter that might mean it's not quite as strong as the first quarter? Or is that just all conservatism?

Conservatism that has a negative connotation, Patrick. Look -- no, look, I mean, we've been around this business long enough to know that things can go well and things can go poorly on a turn of a dime. So there's no mileage in us going out on a limb on this. We are expecting to have another good quarter, but we're not going to be making massive promises that we may struggle to deliver at the end of the day. There's no point in that. We've given the market guidance. It's been out there for a long time. We've said we'll achieve it, and we will.

Okay. And then just on Yaouré, you mentioned in the report that been a bit of an issue with truck availability, which you said is temporary, but just wondering if that's had any flow-on effect into the December quarter.

No, I mean the interesting thing is that we had in the June quarter, we had actually -- and also in March, we've been mining ahead of schedule, expecting that we may be slowed down in the September quarter due to wet weather. Now the wet weather certainly came and it certainly slowed us down as did and the truck availability issue coincided with the wet weather. So it didn't really have any impact on us in the long term. And in fact, we're traveling pretty well now. Now that the ones at Yaouré has started to abate. It's actually started to abate at Sissingué too, which is a major plus for us up there as well. But no, the truck issue hasn't really knocked us around in any shape or form.

Very good to you. And then on Sissingué, that's my next question. I mean a good quarter and certainly cash generative, but just wondering what the broader strategy is given the group's $400 an ounce margin target where spot gold is where Sissingué all-in site costs are just...