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 Mining Executive Chairman and CEO, Jeff Quartermaine. Thank you, Jeff.

Yes. Thank you, Nathan, and welcome, everyone, to Perseus Mining's webinar to discuss our December '23 quarter report. As usual, this morning here in Perth, I'm joined by our CFO, Lee-Anne de Bruin, who works with me here in Perth and who's been very good to get up at 6:00 in the morning to participate in the call. And we'll be available, both of us, to answer questions a little bit later as needed. Now the agenda for today's call is that, firstly, I'll provide an overview of what Perseus has achieved operationally during the quarter and as relevant, post the end of the quarter. And as I said, then we'll have a Q&A session in which Lee-Anne and I will be happy to address any questions that you may have about either the quarterly report or our business in general. I expect that given our recent announcement regarding our intention to make an offer to purchase all of the outstanding OreCorp shares, you may have some questions on this. And if so, I'll be more than happy to discuss this with you at the end of the presentation. As usual, I'll try and keep the presentation as brief as possible as all the details that you really need to understand what Perseus has achieved this quarter are fully documented in the market release that was published earlier today. But let me highlight a few points. And for those of you who are listening to this call on your computer, you should be able to track my comments visually on your screens with the presentation. Now I guess it's starting to become a little bit repetitive on these webinars. But once again, this quarter, our team at Perseus has delivered another very strong operating performance, not only in terms of gold production but also all-in site costs and cash flows. But right across the company, including the business growth area, where we are endeavoring to expand and upgrade the quality of our asset portfolio. The strategic benefits of having multiple mines in our portfolio has once again been ably demonstrated this quarter. Sissingué, the mine that had an awful September quarter due to very heavy rainfall, has improved dramatically. Edikan just continues to power on, performing on target week in, week out, much to the surprise of some of the commentators who were critical of Edikan in its early years. And Yaouré, for the first time in its history, has experienced a few challenges. But it's still the powerhouse of our business. So across the 3 operations, things are balanced out and the group has done very well. Now notwithstanding the ups and downs of mining, we've as I said done very well, comfortably achieving production guidance and comfortably beating our cost guidance and simply continuing to do what we promised to do. A bit boring, perhaps, but good from our point of view. So without further ado, let's turn to the scoreboard, as they say, and just see what I'm talking about. So if we look at the operating results for the quarter, so 128,773 ounces were produced, which is slightly down on the prior quarter. All-in site costs averaged USD 1,023 an ounce. That was slightly up as well on the pre -- prior quarter, reflecting the [ answers ] as much as anything. The average sale price was USD 1,963. So that was up a little bit on the prior quarter, about $27 an ounce, giving us a cash margin of USD 940 per ounce, which converted to notional cash flow of $122 million from the operations. And leaving us at the end of the quarter with a net cash and bullion balance of $642 million, so that was up about 8% on the previous close of the period. And we'll talk about that in a moment. So Perseus is firmly on track to -- with what we're doing to continue to fund growth and to continue to return capital to shareholders. Now if we look at what that means in terms of half year, which is how we guide in the calendar year, it's similarly very strong. I mean on the calendar year '23, 528,486 ounces, in the upper half of the guidance range. USD 984 per ounce all-in site cost, and that was below the guidance range. We were selling it for about $199, the gold -- $199 an ounce more than we did in the prior year. And cash flows were very strong. Notional cash flows were strong. In fact, USD 492 million notional cash flow in calendar '23, delivering that cash balance that I mentioned earlier on. I've got on the screen there now a chart that has been tracking our performance in previous quarters. And you can see that quite clearly, all 3 mines are performing very well and are achieving or exceeding production guidance and in line with all-in site cost guidance as well. Now while this has been going on, the production and the cost has been quite consistent now over a long period of time, period-on-period. But what has occurred, of course, is that the gold price has been rising during this period, which has led to a steadily growing cash margin, which has been the thing that has driven that cash balance that I referred to earlier. And if you look at how we've performed relative to our guidance, however, a similar period, we're well matched to the guidance that we've given certainly in terms of production. In terms of costs, we've actually been running below the guidance range in the last 3 half years. And I'll talk to that in just a moment. But certainly, we're keeping a lid on things. Now the only times that we've missed the guidance ranges was in the first 6 months of COVID, and I don't think too many people would hold us to account too much on that. If you look at the individual operations, Yaouré, as I say, it's been going reasonably well. It's down a little bit this quarter. It's still producing 47% of our total production. The slight dip in production was driven by grade, relative to the prior period. The production cost at $794 an ounce and all-in site cost, $960, was up on the previous quarter. But we did flag last quarter that we were going to be increasing the total material moved to make up for lost production during the quarter when we had very heavy rain, and that did occur and will continue to occur going forward. So in the next few -- next 6 months or so, we are going to see further increases in the all-in site cost as we bring to account accelerated mining rates. Now Perseus, when we report all-in site costs, it's a little bit different to how other people do it. But included in that number is all of the costs that we incur, so a lot of people capitalize stripping costs and things like that. We don't. We report it in the all-in site cost. So in fact, it isn't anything to be overly concerned about. We will be back on track fairly shortly, and things will settle down from there. But as you can see from that guidance slide earlier on, we -- there were a few periods where we were moving less material than we had planned as a result of weather and other things. But we have set up a plan in place to get back on track, and there will be some costs associated with that additional work. Notwithstanding that, things are tracking pretty well. We're getting very good reconciliation against the block model. So it's about negative 1% on contained ounces across the block model for the last 3 months or so, and that's fairly tiny. We also released during the quarter an updated technical report for Yaouré, which gave an updated life of mine plan. And it also demonstrated the technical and economic viability of putting an underground mine down off the CMA pit, which is something that we will be doing in years to come. And that will extend the mine life for about another 12 years or so from now. So that's a fairly important piece of work that was done during the quarter. At Edikan, as I said earlier, it's been going along very well during the quarter, 50-odd thousand ounces produced, about 39%, 40% of our overall production. It's actually been a very solid result. I mean, run time of 95%; grade of about 1.1 gram; recovery, 92%. Those are metrics that are not normally associated with African operations, I have to say. But at Edikan, they're running exceptionally well. And all-in site cost of $930 an ounce is a very, very creditable result on -- in global terms. The cash margin from Edikan, a bit over $1,000 an ounce, notional cash flow around $51 million. So it's actually really working very well. And I guess it's validating the change in strategy that we implemented a few years ago with Edikan of pursuing cash flow rather than pursuing production. So rather than producing low-margin ounces, we elected to produce high-margin ounces. It did knock our production down a bit but certainly has benefited the bottom line. As like Yaouré, our reconciliation is pretty good. We're about plus 5% on contained ounces there, so that's encouraging. And we will be looking to open up a new mining area in coming periods. This is the Nkosuo mining area, which is just to the north of the project. And with the mining lease, the license was approved by the Minerals Commission during the quarter. And so we're looking forward to getting started on that mining operation later in this year. Now Sissingué, I said at the outset, Sissingué had bounced back from a very dismal September quarter where we had quite serious rainfall. And it's done very well. I mean, production is up about 70% quarter-on-quarter. The metrics of the operation are pretty solid, about 94% run time, recovery is 91% or so. So very good performance. The costs are down quite a lot from the previous quarter. I think it was a bit over $2,000 an ounce in September, and it's down at about $1,500 an ounce at the moment. So that's quite a drop. And it will continue to drop in coming periods as our production steadily increases at Sissingué. The cash margin was $520 an ounce -- $521 an ounce, and we made about $10 million a quarter. So a fairly handy little cash generator, a very tidy operation and contributing well to the bottom line there. Once again, reconciliation has been good. I think it was plus 7% on ounces, so that's encouraging. The ESIA, the environmental and social impact statement, that we needed to prepare for the Bagoé mining operation, you might recall, we acquired the Bagoé operation a couple of years ago. That feasibility study was approved, and the mining license has been -- has gone through the inter-ministerial committee and is waiting signature by the President. So we should get that fairly shortly. So the 3 operations have done pretty well. Now looking forward, the guidance that we're giving to the market is down a little on the production in the December half year. And that does reflect what I was saying earlier about the impact of doing the catch-up mining at Yaouré. But it's still fairly strong in relative terms. So -- and I should say at this point, I mean, we're 20-odd days, 21 days or so into the first month of the quarter, and I think we're running at around 12% above our budget. So it may turn out that our forecasts are a little conservative, but we'll see how things pan out as time moves on. Now in terms of the financial position, I'll pass to Lee-Anne to speak to this slide, if you wouldn't mind, Lee-Anne.

Thanks, Jeff. I will. Hi, everyone. So as you can see that the quarter we ended the -- at 31 December, with a cash balance of USD 642 million. We emphasize the point that we still have zero debt and an undrawn credit line of $300 million. Our net increase in cash was about USD 48 million. That included a good performance, as Jeff has just pointed out, in the operating area giving us operating cash flow margin of USD 131 million. But we've also started to focus, as you'd all be aware, on our capital allocation. And so that included equity investments of USD 40 million in the period and a return to shareholders of -- our Perseus shareholders of $22 million. I sort of point out further that we've also contributed to the government through tax payments in Ghana of about $14 million and continue to deploy cash back to our 10% shareholders in country through shareholder dividends. And then moving on to our hedge book, I think it's important just to emphasize our hedge book, which we focus on to ensure we've got some long-term certainty in our cash flows. We ended the quarter with a small increase in ounces of about 352,000 ounces hedged out at an average $2,062, which was a $32 increase on the quarter-on-quarter per ounce.

Yes, I should point out. That $2,062 is a U.S. dollar amount, not an Aussie dollar amount. So it's in the money as we speak today, that hedge book. So that's actually quite a strong asset of the company.

Thanks, Jeff.

Good. Thank you, Lee-Anne. And just looking at some other aspects of the business, so in terms of the sustainability side, this is a very important part of the business that we do. Looking at safety statistics, safety across the group has been pretty healthy. We've been gradually bringing our total recordable injury frequency rate down, our TRIFR down from 1.07 to 0.89. So that's good. We are investing quite a bit of money in the safety space, I might add, so it's nice to see that we're getting actually some bang for buck on that. And what's actually even more pleasing is that in reality, people are very much embracing the concept of safety, which is something that is not normally the case across African communities. So we are pleased that we're making inroads in that space. Speaking of the communities, we've continued to make fairly strong economic contributions to our host countries. It was around USD 150-odd million, USD 145 million during the quarter across the 3 governments, and that obviously makes a difference. Our employment levels for about 95% of our workforce is locally -- local people. So a fairly limited number of expatriates. So we're contributing to employment in these countries. And we are looking at our gender balance and recognizing the cultural differences between, say, Australia and some African countries, 13% is female, which is steadily moving upwards. And happy to report, nothing of any note in either the community events or anything in terms of any environmental issues over the period. So that's all quite pleasing. In terms of our organic growth, I did mention earlier on the updated technical report that we produced for Yaouré, given the updated life of mine plan and also the feasibility level study on the underground mine. It will produce -- extend the mine life at Yaouré for at least another 12 years, and I would be surprised if it doesn't go well beyond that, I have to say. And certainly, it's increased the reserves. So we've got about 2 million ounces in front of us from this point forward, even though we've already had 3 or 4 years of very good production from the Yaouré mine. So that was an important piece of work that was done during the quarter. We continue to look at our exploration activities quite a lot. I mean in terms of Sudan, I should mention Sudan because clearly, that has been a bit of a setback for us. We do have staff on site, and we are looking at restarting the exploration. I'll come to that in a bit more detail in a minute. But certainly, around in Cote d'Ivoire, we've been focusing pretty heavily around -- on the Yaouré tenements particularly, and made some pretty interesting discoveries actually on that CMA structure. And also to the north, there's another prospect there, so we'll be bringing out results in due course of that. But certainly, the results that we're seeing from around the Yaouré mine is giving us a lot of confidence that extending the mine life beyond where we currently are beyond that 12 years is something that is reasonably in prospect, I would think. And similarly, the exploration up around Fimbiasso mine has generated some very interesting results as well, and we'll be speaking about that in more detail as this quarter goes along, I'm sure. In Ghana, we've been doing quite a lot of work on the licenses that we acquired last year adjacent to the existing licenses for Edikan with the aim of extending the life of that mine from its current 5 years to a 10-year operation. That's our target, to double the life there. Now it's early days on some of this exploration. The Nkosuo deposit was the first discovery we made up there, but we believe that there are prospects on that land that certainly warrant very close examination. And we'll also be very surprised if, in the fullness of time, we're not talking about additional deposits up in that particular area. I mentioned Meyas Sand. And just to focus on that a little bit more because we do -- we're holding very high hopes for the development of the Meyas Sand Gold Project. It's located in the far north of Sudan near the border with Egypt. It's a fully permitted project. So it's ready to move into development pretty much as soon as we had done the work that we are working on. Unfortunately, armed conflict broke out in the country in April last year. And there is still conflict occurring in parts of the country. I might say, well away from where we are located. The military situation around our area is very stable, and -- which is important to us because clearly, the safety of our staff and our contractors, people is our top priority. And we wouldn't be putting people at risk. But nevertheless, the situation is stable. We do have people on site at the present time who are busily working on reestablishing services and logistics to support the recommencement of exploration activities. And we believe that, that work will -- we will be able to get away on that work, to start work on that in the June quarter this year. And we'll continue to drill out the Meyas Sand Gold Project for as long as we need to before we move into development on that one. We do believe the geological potential is extremely large in that area, and we do expect to be able to not only convert the resource reserve from the CIMM to JORC reserves. Well, I'd like us to do that before too much longer. But we believe we'll be able to expand that as well, and that will significantly add to our mineral inventory as a company. Now turning to organic growth. And this is one that, I guess, was in the newspapers yesterday. We look -- as a company, we've looked at both organic growth and inorganic growth means to continually upgrade the size and quality and geographic distribution of the portfolio. So that's meant maintaining a watching brief right across the continent and identifying opportunities to -- both in predevelopment and production. But when they come, when the opportunity arises, to move to add them to the portfolio. So what we did in November, as people are aware, we did take a 19.9% stake in the issued capital of OreCorp, which, as you know, is an ASX-listed company with an important asset in Tanzania. And on the 22nd of January, so just on Monday, we announced our intention to make an off-market takeover offer for all of the shares in OreCorp that we don't already own. Now the consideration for that purchase is AUD 0.55 in cash per share. And we believe that, that is a very fair and attractive offer. The bidder's statement, our bidder's statement will be -- is expected to be lodged with ASIC and provided to OreCorp and released to the market prior to the end of this month. So within a week or so of today, that will be in the public domain. And that will outline precisely what we are offering to the OreCorp shareholders. When we made the offer, it was at a slight premium to a competing offer that's been made for OreCorp. That was made on the 27th of December and amended on the 16th. But certainly, the price that we are offering is slightly above or was slightly above the Silvercorp offer. I mean, it changes day to day as exchange rates, silver prices and Silvercorp shares move up and down. But that was the situation when the offer was made. But all of the conditions on the offer that we have made are materially the same as those that Silvercorp have made and including the condition of the offer being we need to get 50.1% of the shares in order for that to go through. Now the thing that is important here, I guess, and is worth noting is that Perseus's offer, unlike Silvercorp's offer, provides OreCorp shareholders with the certainty of receiving a cash payment that's equal to 100% of the stated value of consideration. Now the Silvercorp offer is comprised of a significant percentage of their shares. And as I said, depending on what's happening in the silver market, what's happening in the North American equity markets, what's happening in the exchange rate, both the Canadian and U.S. dollar to the Aussie dollars, their value moves up and down. So to the shareholders of OreCorp, over a fairly simple and stark choice, do you take AUD 0.55 cash? Or do you take a punt on a whole series of variables over which you've got no control? On the base -- back of that, we think that our offer is a superior offer, and we would expect that in the fullness of time, OreCorp shareholders will come to the same conclusion. So that pretty much brings to an end our presentation. Look, as I said at the start of the call, we've had another good quarter in all fronts, including gold production, costs, cash flow generation. And very pleasingly, the work has been conducted in a safe and sustainable manner in line with the targets that we've set ourselves. In terms of production guidance and cost guidance, once again, we've delivered on what we said we're going to do. In fact, we've actually done better than that. And looking forward, the guidance for the next 6 months, while it's down a little relative to recent performance, it's still very strong relative to many of our peers. And the slight downturn is temporary. And I'm very confident that it will not be very long before Yaouré, in particular, is back on track. Our financial fortunes have been very strong, clearly helped by the buoyant gold prices. But I have to say that our treasury team has done an outstanding job to capture the benefit of this rising price and, at the same time, put in place a floor such that if the gold price does pull back, then Perseus will be in a much stronger position than many of its peers. Our cash balance continues to grow. And notwithstanding the fact that we have used cash to make that investment in OreCorp that I mentioned earlier, we've got USD 642 million. Now that's U.S. dollars, not Australian dollars, in the bank. And we have no debt. I don't think too many of our foundation investors back in 2004, when the company was created or whatever, expected that Perseus would be in that position, but that is the position we find ourselves today. Now what we plan to do with this ever-growing cash balance is something that does exercise the mind of a lot of investors and commentators. And let me assure you that we do intend to continue to grow our company and incrementally improve the quality of our asset portfolio when opportunities do arise. And when they do arise, we won't hesitate to deploy capital accordingly in a way that's beneficial to shareholders. Now in the immediate future, we do plan to continue with our existing capital management strategy by declaring a base dividend supplemented by a bonus dividend or potential share buyback or whatever or a capital return, depending on how much excess cash is available at the time. And I point out that we will be reporting our half year financial results in February -- on the 23rd of February. At which time, you'll hear more on the subject of dividends. So finally, in conclusion, I do want to acknowledge the contribution made to the success of Perseus over many years, but in particular in the last quarter, by all of the men and women in 4 countries that make up the Perseus Board, management and operating teams. In the main, you continue to do an outstanding job. And I sincerely thank you all on behalf of the Board of Directors and shareholders for your efforts in helping us to continue to deliver on our promises. So listen, thanks very much for your attention today. This brings my presentation to a close. And now, Lee-Anne and I are happy to field whatever questions you may have.

Thank you, Jeff. [Operator Instructions] Now I've received a lot of questions regarding Monday's announcement about OreCorp. We have summarized into these questions, which we'll let you address now, Jeff. So the first one, is this your best and final offer for OreCorp? Or could you pay more?

Look, as I said, our offer is superior in value and certainty to the [ old ] OreCorp offer. We believe we're paying a full and fair price, a very full and fair price. And look, furthermore, it's pretty clear that Perseus is the right party to be the steward of Tanzania's Nyanzaga Project going forward now. We're a little bit surprised that the Board of OreCorp hasn't recognized the superiority of our bid. But nevertheless, it's the shareholders who make that decision, and we believe that they will make the right decision in the fullness of time.

Thank you. Next question. Have you received support from key OreCorp shareholders, including Tim Goyder and Nick Giorgetta?

Look, we've communicated the merits of this proposal as we set out in our intention to bid statement too. Numerous OreCorp shareholders, in fact, prior to us making any investment in this, we were approached by quite a large number of OreCorp shareholders suggesting that we really should consider investing in the situation. We had already been considering it ourselves for some time, but it was interesting that there are a lot of shareholders out there who are very keen to see an offer from us. And the feedback to date has been quite positive, I have to say. We're -- generally stating the view in their mind, the Perseus offer is superior to the Silvercorp offer. Now in respect to specific shareholders and their intentions, I mean, the 2 gentlemen that you mentioned are intelligent and wise investors, and they will make up their own mind in the fullness of time. But as I say, they're canny investors. They know what value looks like. And I'm sure that in time, they will see that this is a superior offer and then appreciate the attractive nature of it.