Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

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 to Perseus Mining’s webinar to discuss our December '22 quarterly report. Now as in the past, I'm joined on this call by our CFO, Lee-Anne de Bruin, who will be available to answer specific questions as needed later in the call. Now both Lee-Anne and I are joining you this evening from our Yaouré Gold Mine in Côte d’Ivoire where we are currently engaged in our quarterly program of reviewing the operations. Now the Internet and the power supply are usually very reliable at site. But if we go missing part way through the webinar, it will be because of telecommunications problems. And so I apologize in advance, but let's hope that, that apologies is not necessary. Now what I plan to do today is, firstly, to provide an overview of what Perseus has achieved operationally during the period ending 31 December 2022, and then follow that up with a Q&A session. I'll keep the presentation as brief as possible because all the details that you need to understand what Perseus has achieved this quarter are fully documented in the market release that was published earlier this morning. But let me highlight a few key points, and then we'll discuss the detail if you wish. I'd like to start saying by -- started off by saying how really pleased I am that I'm able to report that in line with the trend that Perseus has followed for some time now, we've delivered yet another strong gold production and cost performance this quarter that's resulted in this outperforming both our market guidance for our gold production and costs in both the December '22 half year and the full 2022 calendar year. Now for the half year, we produced 268,371 ounces at an all-in site cost of USD 930 per ounce. And in the full calendar year, we produced 521,220 ounces at an all-in site cost of USD 941 per ounce. Now both of these results outstripped our production and cost guidance. As I said, in other words, they were above the top end of the guided production range and below the bottom end of the guided cost range in each case. Now this regard, I also note that both the Edikan and the Sissingué mines outperform their guidance ranges as well while Yaouré finished the year in the upper half of its guidance range. So a great result all around. Now as importantly, we've continued to deliver on our promises and that's a core value of our company, as you all know. Now in the December quarter itself, we produced 130,911 ounces of gold, which was slightly less than our quarterly production record set last quarter, but still a very solid result. Now weighted average all-in site cost for the quarter at 983 per ounce was less than the commonly used benchmark of about $1,000 an ounce and being based on a weighted average production cost of USD 881 per ounce. This is a very solid result, given the challenges that exist with cost inflation as well as logistics and procurement in the world at the moment. This all-in site costs places Perseus towards the bottom end of the global cost curve, a position to which we have not always been able to lay claim. Now like everyone else in the mining industry, Perseus is set to battle hard against the global trend of rising costs. We are managing to keep our costs reasonably in check, but this certainly doesn't happen without effort. And full credit must go to our site teams who are certainly proactive in looking for opportunities to reduce costs. The strong performance by Perseus over the last few years continues to demonstrate quite clearly, I think, that the benefit of our corporate strategy of transforming into a multi-mine, multi-jurisdiction company. This approach has enabled us to not only materially increase our production and cash flow, but also reduce volatility for investors by spreading our risk over 3 operations in 2 different countries. Our very strong and reliable operating performance has also transformed our business financially. In the 2022 calendar year, helped by a strong gold price, which averaged about 1,714 per ounce over the year, our operating performance generated notional cash flow from operations of USD 402 million. And after repaying debt, funding inorganic growth, paying overheads and declaring not only a dividend but a bonus dividend as well, we ended the year with USD 405 million or almost AUD 600 million of cash in bullion on the balance sheet. Now this represents an increase of about USD 76 million net cash relative to the end of last quarter, which translates into an increase of about USD 242 million or AUD 324 million year-on-year, and that's about 149% increase. This result clearly set the company up for a very -- has clearly set us up for a very promising future. But before discussing that, let's talk in more detail about the immediate past as reported in the quarterly. Now for the past few quarters, our Yaouré mine has been the standout performer. And this quarter, once again, it contributed nearly 50% of our gold production, producing 65,352 ounces of gold, at an all-in site cost of USD 798 per ounce, which of itself places the Yaouré well down the list in terms of the global cost curve. This amount of gold production was very much in line with our expectations. And while it is less than the previous quarter, the result reflects an expected change in the mining location in the CMA pit to a slightly lower grade material zone. Now all other KPIs at Yaouré were at or above targets, including grade reconciliation where the contained ounces of gold in the ore feeds to the mill equaled almost exactly the contained ounces as per the block model. So notwithstanding a slight pullback in production, Yaouré is going extremely well. The Edikan mine, which had a trouble start to 2022, has continued to show the benefits of the turnaround first reported in the September quarter. Now in the December quarter, Edikan produced 53,850 ounces, about 3% more than the last quarter, and that represented about 40% of our quarterly production. And that took place at an all-in site cost of $1,058 an ounce. So a vast improvement on the costs reported earlier this year. And the performance that meant that -- on a half yearly basis, gold production was above market guidance for the mine and all-in site costs were below the guidance range, as I said earlier on. The half year -- on half year increase in production of 58% was quite pronounced. And I'm very pleased to say that so far this quarter, we're getting similarly strong results at Edikan. So it certainly seems to be hitting its straps very well. Now last but not least, has been our Sissingué mine. Now where we had another strong performance relative to plan this quarter. In the December quarter, Sissingué produced 11,709 ounces of gold at an all-in site cost of USD 1,672 per ounce. Now both of these metrics were slightly better than our expectations at this stage of the mine life and in fact, resulted in Sissingué outperforming the half year market guidance as well. Now in part, this performance -- the improved performance is the result of a positive 6% reconciliation in ounces contained in the mill feed relative to block model. But most other metrics were also very strong relative to the internal targets. Now I should point out that during the September quarter at Sissingué, we processed low-grade material from small pits around the main Sissingué pit due to us being in something of a holding pattern until ore in the Fimbiasso East and West pits could be accessed. Now I'm very happy to say that we're now mining higher grade ore from Fimbiasso East. And this will be – we will be starting to hold this back to the mill towards the end of the current quarter. So a step-up in the contribution from Sissingué is not very far away. So all in all, it's been another very good quarter for Perseus in terms of gold production and costs on all 3 sites, as I said, and looking to the future, we expect that this level of performance will continue. So our market guidance for production and costs for the next half year is 230,000 to 260,000 ounces, at an all-in site cost of $1,000 to $1,200 an ounce, which on a full year financial basis translates to something like 498,000 to 528,000 ounces of gold at an all-in site cost of $1,000 to $1,100 per ounce. Now I should also note that in conducting our mining and exploration activities across the company, we have sought to do this in a manner that is in line with the globally recognized sustainability standards that were set out in our fiscal '22 sustainability report. Now the exact metrics of our ESG performance this quarter are documented fairly clearly in the quarterly report, but I will highlight just a couple of these achievements. In terms of safety, our lost time injury frequency rate across the group reduced from 0.26 to 0.25. The sites combined achieved a safety milestone celebrating something like 1.6 million hours without an LTI for Edikan, 17.2 million hours without an LTI at Sissingué and more than 2.4 million ounces without an LTI for Yaouré so that was a fairly decent kind of a safety performance. On the social front, Perseus’ significant economic contribution to our host countries of Ghana, Côte d’Ivoire and now Sudan continued. And for this quarter, it came to about roughly USD 116 million or about 33% of revenue. This included about $99 million paid to local suppliers, representing 80% of our procurement on a purchase order value basis, $9 million paid in salaries and wages to local employees, $7 million in payments to government taxes and royalties and other payments and about $1.4 million in social investment. These sums are very important to our host countries, some of which are struggling financially at the moment, and we're very proud to be able to continue to contribute in this way. Local and national employment has been maintained at above the 95% of our total workforce. Our gender balance across the group slightly altered this quarter with female employees reducing from 13% to 12% and consequently, male employees increasing from 87% to 88% male. Given the industry in which we operate, but more particularly the cultural orientation of our host countries, these ratios are quite reasonable. To illustrate the point, I note that in our corporate office in Australia, the female to male ratio of employees is about 31% to 69%. So -- and the senior management team 40% female, 60% male. So that reflects the cultural orientation of Australia as much as anything as opposed to our African host countries, which have a different approach. We had no environmental incidents of any type during the quarter, and in absolute terms, our total Scope 1 and Scope 2 Greenhouse Gas emissions has increased marginally from 0.47% to 0.5%, which is not anything to be too concerned about. So on an ESG front, we're performing reasonably well, and we remain quite committed to continuing to incrementally improve our ESG performance relative to the internally adopted standards, which, as I said earlier, aligned with internationally accepted standards in the vast majority of cases. Turning to financial matters. During the quarter, national cash flow generated was USD 101 million, which, as mentioned earlier, amended for the full year, a total of USD 402 million of notional cash was generated from the operations. And as I said, after deducting exploration development costs, corporate overheads, et cetera, with gross cash bullion and -- cash in bullion on hand at the end of the period was USD 405 million. That was made up of USD 361 million of cash and 24,431 ounces of bullion that was valued and spot at about $44 million. Now as I said, 149% more than the same time last year. So that represents very, very strong growth in this area. Now during the quarter, we did repay the outstanding balance on our corporate debt facility. So that has left the debt balance at 0. Now you may recall also at the end of the last quarter, at the end of September, we were carrying 93,634 ounces of bullion on hand as a result of some timing issues that we were dealing with. But as was promised this gold price was fixed at the time of reporting was delivered into forward sales contracts this quarter, reducing gold inventory, but more importantly, boosting our cash balance just as we said it would. Now speaking of gold price hedging, Perseus currently has a mix of designated forward sales contracts and spot deferred contracts, covering about 345,000 ounces of gold at a weighted average sale price of $1,906 an ounce. Now this represents about 23% of our production on a 3-year rolling basis and is important to us is even if the gold price weakens relate current levels as a result of strong USD or some other factor, Perseus’ projected cash flows are, to a large extent, underwritten. Now right now, Perseus is generating a lot of cash, and its balance sheet is very strong, placing us in a position to fund all of our activities, including exploration and the development of new projects, such as the Meyas Sand Gold Project in Sudan and the continuation of our dividend policy from existing cash balances that will earn any future cash balances, a very nice position to be in. Now speaking of business growth activities. This is another area in which we've been very busy and pleasingly productive this quarter. Turning firstly to our latest acquisition, the Meyas Sand Gold Project, which was formerly referred to as Block 14 in Sudan. Now as reported last quarter, we had awarded a 100,000 meter drilling program to Capital Drilling, a very highly regarded international drilling company. And during the December quarter, they mobilized the site and have started drilling at the side of the Meyas Sand Project. The designated task is to firstly perform infill drilling on the main deposit at Meyas Ssand to convert impaired mineral resources into measured and/or indicated mineral resources that we can incorporate into an ore reserve estimate in the mine plan. In addition, they had another local drilling company that are tasked with performing sterilization drilling to ensure that proposed sites for plant waste dumps and tailings dams have not inadvertently been located on top of valuable mineral deposits. During the quarter, we also continued to work closely with Lycopodium, our engineering contract, contracted to advance the front-end engineering and design study, of course, prepared the definitive feasibility study for the previous owner of the property. So they're very familiar with the project. And of course, having worked with our construction team before on a couple of occasions, they're also very familiar with the exacting standards that Perseus will require when the project is to be built. Now at this stage, it's a case of checking assumptions and incorporating the extensive lessons we have learned from the development and the operation of both the Sissingué and Yaouré plants, both of which were built by Lycopodium on our behalf and then both of which are running very, very well, I might add. And very importantly, the other task that needs to be done is to confirm the capital budget. Now as part of the FEED study, we've also completed confirmatory pressure testing of the water aquifer in Area 5 that will ultimately supply water for the Meyas Sand Operation when it's up and running. Once again, the contract is used for this exercise hydrogeology, have a lot of experience in Sudan. And based on the results we've seen to date, we expect that it will be confirmed that the aquifer has more than enough capacity to satisfy all of our water requirements for the entire life of the Meyas Sand Gold Mine as well as to satisfy a number of community projects that we're currently considering. Aside from the above, there is a lot of work happening on the ground in Sudan in preparation for an influx of a large number of workers to the Meyas sand site once construction starts. Things are tracking very well in this regard at the moment, and we are grateful for the terrific support of our project that we're receiving from key ministers and the departments within the Sudanese government. Now given the above, we're currently targeting taking a financial investment -- final investment decision on the development of the Meyas Sand Project in the second half of this year, most likely early in the third quarter. Now in terms of funding the development project, we expect to be able to fund the entire capital cost of development from existing cash balances available at the end of the current quarter. So this assumes that our earlier cost estimate of something in the order of $450 million to develop the mine is confirmed by our current FEED study. Notwithstanding our strong cash balance, we are investigating several debt financing options. And if we proceed with one of them, we'll be able to not only fully fund development of the Meyas Sand Gold Project, but we'll also have significant capacity to pursue other growth opportunities should they come along. I have to say that the ownership of the Meyas Sand Gold Project gives Perseus a distinct first-mover advantage in Sudan, a country endowed with enormous mineral wealth, and one that is keen to welcome for an investment. And I'm pleased to say that several other exploration predevelopment opportunities are starting to emerge as a result of our presence on the ground. It's much too early to be talking about this pending project beyond Meyas Sand Gold Project at this stage. But given that rich mineral endowment, it's not difficult to envisage that Perseus is operating footprint in Sudan could expand the fullness of time, and we're very well positioned to make that happen. Now while on the subject of Sudan, I should say that Perseus does not take sides in political debates in our host countries, but we are greatly encouraged by recent moves in Sudan to bring together all sides of politics to reach a quarter on a mechanism for guiding the country forward in a peaceful and stable manner. Now whether this results in the civilian-led government and peaceful democratic elections within a couple of years will be evident very shortly. In fact, I was reading today that I think that might be the case in early February. But from all our appearances, the goal certainly appears to be within reach, which is good for all stakeholders, including the citizens of Sudan, and of course, Perseus. Now moving on to other organic growth initiatives. As announced recently, we have through exploration success close to our existing infrastructure, made pleasing progress towards being able to sustain our targeted production of 500,000 ounces plus of gold per year out towards the end of the decade without taking into account any M&A or greenfield development activities that we -- that might come our way. Following the end of the quarter, we issued a market release detailing the results of ongoing exploration during the quarter at Yaouré gold mine, where drilling has returned high-grade gold results from the CMA Northwest and CMA North targets down dipped from the recently announced underground ore reserves. And what this does, it demonstrates that there is really a significant potential for further underground resources growth, which will lead to the development of an underground mine here at Yaouré. Now in Ghana, following the release last quarter of an indicated mineral resource in Nkosuo as well as completion of a feasibility study on the project, resulting in a probable ore reserve of about -- containing about 332 ounces of gold. We've recently applied to the Ghanaian Minerals Commission to the land covered by our Agyakusu exploration license that host the Nkosuo deposit to be incorporated into our mining lease. Now last week in Ghana had very encouraging discussions with the authorities that should result in that expanded mining license being issued fairly shortly, which will allow us to upgrade our life of mine plan to include an operation involving trucking ore from Nkosuo to the Edikan plant for processing. During the quarter, we also exercised options to buy the adjacent Agyakusu DML and Domenase exploration licenses. The transfer of these licenses into Perseus’ name has received ministerial approval and the transfer process should be completed within days if it hasn't already happened actually. This will enable us to start drilling 3 more exploration targets that have been identified on our land package near Edikan. And if they live up to the potential shown or even 1 or 2 of them, this could provide further extensions of the life of Edikan operation. Now having recently invested time and money in turning the Edikan operation around, being able to extend the Edikan mine life as a lot merit in terms of upgrading the quality of our asset portfolios. So in conclusion, as I said at the start of the call, each of the December '22 quarter half year and full calendar year has been outstanding for Perseus in all fronts, including gold production, all-in site costs, cash flow generation and business development. And pleasingly, this work has been conducted in a safe and sustainable manner in line with our targeted standards. We have delivered gold production and all-in site costs that's comfortably been in our half year and full year market guidance. And in doing so, we've outperformed a lot of our peer group. Our all-in site costs are currently very competitive in terms of our global peers, and we are managing our business successfully in a tough economic environment. We have excellent growth potential in front of us in the form of the Meyas Sand Gold Project and from the exploration successes that we're clocking up adjacent to existing infrastructure at our mines, we're traveling pretty well. But I guess, as importantly, in this respect, we've got the human capacity and the existing financial means to successfully execute and unlock the value as we've demonstrated several times in the past. In an equity market sense, our share price is holding up well, and we're performing reasonably strongly relative to our market peers. In fact, I think that in terms of market cap, we're now Australia's fourth largest listed gold producer, and we present a very viable alternative to investors seeking to invest in high-quality gold stocks. Before concluding, I do want to acknowledge the contribution made to the success of Perseus over the last 12 months by all of the men and women in our -- in 4 countries that make up the Perseus team. They've done an outstanding job, and I'm very fortunate that on my current round of site visits, as I said at the start of the call, Lee-Anne and I are currently on site at Yaouré. I've had the opportunity to thank them more personally for their great efforts in delivering on our promises. So thank you very much for your attention today. This brings my presentation to a close. And now we're available -- Lee-Anne and I are available to take any questions that you may have.

[Operator Instructions] Your first question comes from Reg Spencer at Canaccord.

Just a couple of questions from me. FID for Meyas sand or Block 14 as it was formally known, when might we expect some updated metrics, be the CapEx or OpEx for that project? Will that be ahead of FID, noting that there still does appear to be some relatively strong inflation or industry inflation around at the minute. And then as part of that question, how acute might those pressures be in Africa versus somewhere like Australia, do you think?

Well, let me say this, that the estimate that I mentioned of the $450 million is $130 million more than the capital cost estimated by the previous owners. So in coming up with that estimate, we've already factored in quite significant cost inflation on the basis of shipping costs and logistics costs, in particular, steel costs that we were seeing about 6 months ago now. Some of those cost pressures have actually abated. So we're very confident that, that number will come in around that level, if not below. So we'll have to wait and see. But as to the timing of the release of that information, Reg, I can't say to you today precisely when it will be, but it will be when we're comfortable with those numbers, and we're confident that we know exactly where we're tracking.