Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

Okay. So my name is Jeff Quartermaine. I'm the CEO of Perseus Mining Limited. Perseus is an Australian-listed gold mining company. We're also listed in Toronto and Tier 6. All of our activities are focused in Africa or on the African continent, where we operate 3 mines: 2 in Côte d’Ivoire, and 1 in Ghana. And we've got 2 development projects that will be brought in line progressively over time. So it's a rather unusual company in that sense that we have full exposure to Africa. But we're performing extremely well in terms of generating cash flow and earnings, and we represent a very attractive investment alternative to people who are looking for value.

Jeff, welcome to London. You've been on the road for a bit, you were in Zurich last week.

Earlier this week.

So how was it?

Well, I thought it was very interesting, actually. There's a group of investors in that part of the world, not the sort of people we see every day of the week. And we had very, very good meetings and found it very productive.

Do you think -- obviously, everyone's talking about gold at USD 2,400. That's a little bit exciting. Was the conversation pretty much around price?

There was a bit of that. There was a bit of that. I think certainly, that's inspiring a lot of people to look for gold investments. They weren't -- earlier in the year, it was pretty hard work to get people interested. But there's no doubt that the gold price has sparked a lot of attention. And as always happens in these circumstances, people are expecting this to continue forever.

Right. Okay. Talk to me about the projects, okay? You were in Ghana, you were in Côte d’Ivoire, Sudan and obviously, recent -- the news is -- or group and is that closed now?

Sorry.

With the recent acquisition.

Well, we do actually, as of this morning, I think we're about 81% accepted.

Okay. Okay.

Pretty close.

Pretty close. Why would you make a move now?

Well, it wasn't a case of making a move now, it was closing the deal now. We actually have been in discussion with OreCorp for many years, in fact, and we've done due diligence a couple of times over. But we can never quite get to the finishing line for one reason or another.

Must have been distrusting to see them talk to someone else.

Well, it was a little disturbing. I mean, without talking out of school, I mean, we had made a number of non-binding indicative offers to them, all of them conditional on completing aspects of due diligence. So for one reason or other they weren't too keen on us doing some of those studies. And so we walked away from the whole transaction. But what did happen was after the alternative offer emerged shareholders were not that impressed by it and came to us and said, I think you should consider bidding. So we said, well, that's an interesting idea. Why don't we think about that?

I thought I was intrigued by the way that you went about it because you were building up a position and you're able to do it relatively quickly, which I guess caused issues for the other side. So it strategically, technically that works in your favor. But I think the thing that really works in favor was the amount of cash you've got in the bank.

Well, that was helpful, although not necessarily for OreCorp shareholders. I think a lot of the OreCorp shareholders would have much preferred that we issue Perseus paper. But having all the cash on balance sheet, I mean my job is to look after my existing shareholders not future shareholders. And so, we made a cash offer rather than issuing paper and diluting, but -- look, I think at the end of the day, Perseus is the better steward of that asset of the 2 people who are offering to buy it. We come to Tanzania with a significant cash balance. We come to Tanzania with a history of operating in the African countries and with a team of people who know how to develop and operate projects. It's one of those rare occasions, I think that where our objectives align perfectly with the objectives of the government. The government is very keen to see the Nyanzaga project brought into production in the very near future. And Perseus is equally very keen that the Nyanzaga project is brought into production very soon.

I mean, and just talk about the deal a little bit long if you may. You've done a cash transaction, but if I look at your last previous 2 acquisitions, where shares were involved, they've done rather well, haven't they?

They've done exceptionally well. I mean certainly, the Amara shareholders, for instance, have done extremely well, and so have the OreCorp shareholders, yes, indeed. And so it's an interesting sort of a situation. But when we had the amount of cash on the balance sheet that we had by issuing more shares and diluting existing shareholders wasn't really the right approach we felt.

Right. And the right approach for you seems been making margin because you're sub USD 1,000 at ASIC. You were already making margin before this region surge in gold price. How do you do that?

Well, how do we do that? I mean...

If I look at North American market, they kind of look at, Africa is complicated. It's hard to do business or it's expensive to do business. What's the reality?

Well, the reality is you can run a business well or poorly no matter where you locate it. Now we choose to run our business very well, which means that you need to drive it very hard every day of the week and make sure that you keep your cost down, and then produce as much coal as you can possibly do. And you look after all of the stakeholders, I mean, a very key part of our business, and I think this is part of the reason why we've been successful is that we live and die on our mission. Our mission is to generate benefits for all of our stakeholders in fair and equitable proportions. And what that means is that everybody who has an interest in either our projects or our activities, get something out of it. I guess in the old days people would have said, well, will you go in and you maximize benefits for shareholders. But we've come to realize that unless everybody gets a benefit from it, then life becomes very difficult and quite often shareholders stake at anything at all. So the trick to it, though, is to find what is the fair and equitable distribution of those benefits. And we've had some very interesting discussions with the governments and various stakeholders over time along the line and said, okay, so you would like a bigger share of the pie, would you? That's right, we would. Okay. So who's -- who we're going to take it from? Are you going to take it from the employees? What do you want us to pay less to the community or the government? I mean, perhaps you want to take it from the shareholders, well the shareholders won't put their money into the project, if that's the case. So what we need to do is, to sit down, have a mature conversation and say, how can we best share the benefits of what we do. And that is a conversation we have from time to time. And I think that all of our stakeholders are reasonably happy at this particular point in time.

Right. Okay. And then you talked about incentive saying all the stakeholders and so forth. Talk me about culture, because I think culture is really important. You've outlined -- you touched on some of those points, but the culture is important. So new shareholders coming in and understand what you're about, and you seem to about driving things hard. Your phrase going to drive things hard. How do you drive things hard and make sure that everyone is on site?

Well, it's interesting, isn't it? We have clearly defined a set of values inside our company, and we've explained and discussed with all of our employees and everyone's bought into that proposition. And it's quite simple, really. I mean, the 4 values are teamwork, integrity, commitment, and achievement. We have teamwork. Individually, we can achieve a lot, but working together we can achieve even more. We have integrity, is pretty self-evident commitment. We give it a good shot in achievement. We do, we say, we're going to do folks every time. And with those sorts of thoughts in mind, I think we've got a really good group of people. I mean, one of the things that I think we can be quite proud of is the team of people we've put together, and they are very aligned in their thinking. And that, through the strength of the unity, I think we are able to do a lot of good things.

Right. Your last point there in terms of you do what you're saying, again, quarter-after-quarter, you hit targets you do what you say, and that's good. So I want to talk about the -- what 535,000 ounces a year -- last year. I think, that was the number?

You're right. I think, a bit more, again 536,000 ounces.

You're building up a kind of portfolio here. I'm going to assume you know what you're doing, because you're delivering ounces quarter-after-quarter-after-quarter. I don't need a conversation about -- again, taking you out about production and operations and so forth. I mentioned this growth component to what you're to. In this recent acquisition, bringing into the family, I presume with the same ethos, with the same drivers is. What's the end game here for you? Because it's all Africa, so you know Africa. But is there a number that you're going after? Are you going to be just a cash cow? Are you looking to be picked up by one of the majors, well, what's the end game?

No. Well, I mean, what we're seeking to do is to offer to investors an opportunity to invest and get regular returns basically, well, have been consistent, to provide an opportunity where people can invest and know full well that the company is going to continue to deliver more or less what we're doing into the future. So we don't want to be a flash in the pan where we produce 1 million ounces this year and half of that next year. We've sort of deliberately set ourselves so that we can produce around this 0.5 million ounces for the foreseeable future. And we do that in a couple of ways. I mean, one is we work at an organic growth proposition. So what we've been doing for the last 5 years is to ensure that whatever we deplete, we replace. Interestingly enough, if you look at the reserve inventory for the 3 core mines, the reserve inventory at the end of '23 was identical to the reserve inventory in 2018. And we were able -- we've been able to replace each year. And even though we've been increasing our production, we've been putting more back each year. So we've been able to maintain that. But eventually, all good things come to an end and eventually, you will deplete your reserve inventory, and we need to bring new projects in to replace those as they tail off. A couple of our projects -- one of our projects is a relatively low life project at [ Côte d’Ivoire. ] The Edikan mine has a lesser time ahead of it and Sissingué even shorter. So what we've been intent on doing is bringing new projects to the table that are producing as those projects tail off. And your first of those projects we acquired was the more what we call the Meyas Sand Project in Sudan and had it not been for the fact that hostilities broke out in the country. In April of last year, we would be up to our elbows in developing that project right now. The fact is that we're not doing that. But as you quite rightly point out, we've recently embarked on this takeover of OreCorp and Nyanzaga and the aim is that we will get into the development of that very shortly and be producing out of that in 2027.

Well, the benefits of a portfolio approach in terms of derisking for sure. Does that -- with regards to obviously Tanzania, are there lessons learned from the other African place? Or is each country different there? Are we wrong to assume Africa is just one entity?

You're totally wrong to assume it's one entity. I mean, that is absolutely the case. I mean, 51, 52, 53, 54 countries depending on the definition. But quite aside from that, there's also some very marked cultural differences, marked religious differences, differences in history like Colonial history, et cetera, et cetera. So everywhere is very different, and every place has different requirements and how we manage that is that once again, coming back to our core values. Our core values are inviable. We will not breach those under any circumstances. However, with that caveat, we are willing to bend our model to accommodate the local circumstances and ensure that people get something from it. And I can give you an example of what I mean by that is, so we were recently approached by the government in Ghana who said, "We want to buy your gold from you and pay you in CD for it. Now when they initially send that, that was like, well we do that, not sure about that. But as we thought it through very carefully because we don't normally do that, normally, we would have our gold refined and sell it into the international market. When we thought about it, we said, well, actually provided the current government pays us the official rate in terms of gold price. And then and provided they converted at the official exchange rate. Well, that's -- it's good for us because we need local currency to pay local bills. They want gold to boost their foreign reserves. So we took on this approach, which was not our norm, but both sides benefited from it. So this is an example of the fact that we will bend the model to suit the circumstances provided that we're not breaching our core values.

And in terms of these kind of economics, benefits of another African play, are there things that you're bringing over from the other operations, not just in terms of personnel and knowledge, but are there other ways of ensuring that you can keep that sub-$1,000 ASIC number?

Yes. For sure. Like I mean, for instance, if we come across a technology that works in one part of the business, and we're very happy to share that with the other guys and get them to...

Are they all similar sort of ore bodies that which seems to identical...

No. Well, I mean, not exactly, not identical, but for instance, all of our mines at the present time, are open pit, although we are about to do the first of our underground mining operations in the not too distant future as well. So at the moment, given the fact that they are all open pits, there's a lot of commonality between them. But they're not the same mineralogy sort of thing.

Right. And how do you think the market is going to view this in large portfolio Africa play of yours? Because as you mentioned at the beginning, as you said, you've been in Perseus for a bit, but perhaps this is how Perseus reborn in a way, 2.0. I think people -- some people refer to it. And what's your message to the North American market about one, not just the case of doing business in Africa. But in terms of the way that your business delivers on the economic side of things, cultural side of things and this kind of acquisitive nature that you have?

Well, I mean, I'm not sure I need to give too many messages to the North American market because actually 40% of our stock is owned by American investors. In fact, U.S. investors make up the largest proportion of investors that we have. So we were very well known to a lot of investors in North America or a number of investors. But I guess, what we haven't really done in the North American market is pursue the smaller investor, the retail investor, the family office kind of investor, and maybe that's an area where we do need to start to communicate more effectively to those groups of people because, quite clearly, there is a large amount of money available out there. And then there's a large group of people who are wanting to have perhaps the security of an investment in gold. And I think the Perseus can offer that because -- and it can offer it with something that some of our peers can't offer. What we can offer is not a guarantee 100% guarantee, but a very high probability that we will be in business where many others won't, because of the fact that we've got low operating costs. And we've got multiple mines in multiple jurisdictions. We've got a good spread of risk even volatility.

Right. You've explained why you did the transaction -- recent transaction in cash. But going forward, you're building up, especially right now, the margins just grew by $300 or more this side of Christmas. So what's the plan with the cash allocation? What's the best use of that cash? What's the best return on that cash?

It's a very good question actually, and it's something that is exercising our mind. I might add it's a subject that has been probably the most prominent subject of conversation with the 80 or so investors I've met with after the course of this year. What are you going to do with the cash? How are you going to deploy it, et cetera, et cetera. I mean we clearly have a need to, as we were talking about, replenish the portfolio and ensure that our production, et cetera, occur and cash flow can continue into the future. But beyond that, we also want to be returning that to our shareholders as well as the other stakeholders. How? Well, that's the question. Now what we have done several years ago, we implemented a dividend policy where we guaranteed shareholders basically that they only get a 1% yield, somewhat May. But each year, when we've identified the fact that we've had surplus cash, we've paid bonus as well. So the first year, we paid 1.5%. So half of that was -- 1.5% was a bonus. Last year it was 2%, 1% base, 1% bonus. Come 30th June this year, we'll be looking at the situation and saying, okay, we've got this amount of cash on the balance sheet. This is what we expect to generate in the next 6 months. This is what our immediate needs are. These are our longer-term needs in terms of keeping the business going.

Debt free, right?

Sorry?

Debt free.

Well, we are debt free at the moment. That's right, we have no debt. But that's so to say that that's the right way necessarily.

No. I was going to say about balance.

Yes, let' say -- like I think, a little bit of leverage is appropriate. I mean, given that goals are fairly cyclical kind of thing. You need to be fairly circumspect about how much that you'd take on and how much we do hedge. And it's a small amount of our production we hedged. About 25% of our projected production over a 3-year period. But what we do with the hedging is we're very, very disciplined in the way we manage that. We -- in a market like this, we sell into the lowest price hedges on the book and replace them with the highest -- with the higher price. So what we've done over a period of time is average up the value of the book now. I think at the end of December, the weighted average price in that book was like $2,080 an ounce. I would -- don't know what it is exactly today, but it would be a lot higher than that.

And what would likely change that 25% or lower and something? Because I think a lot of retail and you talk about expanding into the retailers that they don't quite understand it in a high price the gold about, why wouldn't you take all the margins, well, it was a benefit to you.

Well, it's like this. The investor can come and go. The gold price turns down, the investigator sells the shares and walks away. We, as a company, still have a responsibility to all those stakeholders that I mentioned earlier on. And their benefits could take the form of cash. Now if the gold price was to collapse, we wouldn't be able to generate that cash. But by hedging in the way we do, we can guarantee that we will generate a significant margin come what may, virtually, like if the gold price went to 0, I think clearly you wouldn't. But under most normal trading or recent historical trading patterns, we can still stay low. And given that, I think the market seems to have adopted a willingness to accept higher costs. I think there might be a few people who are a bit surprised where the gold price collapses. Now we will -- we will still be in business perhaps when some other people are struggling. And that's the benefit of the hedge book, and that's what investors should take note of. Because, yes, we will enjoy the high price while they last, we're going to sell 75% of our production at record gold prices. But on the off chance that the price falls will be around and other people won't be. And to sit here and say the gold price will never fall. Well, I can tell you, you see the color of my hair, that's 30 years old.

Yes. Mine is 30. That's right.

That's the product of having lived through cycles.

And let's talk about the margin, because also all businesses should be focused on margin, right? That's the reality. But when I look at mining and I look across the board when we're doing our analysis, it's kind of shocking that, not just value destruction in terms of projects blowing up in terms of even the ones that are producing ounces are selling those ounces. They are perhaps less than efficient, is a polite way of putting it. Right? So margin is really, really important. At the moment, we're sort of seeing costs have gone up in the last 2 years, but they seem to have plateaued a bit. Gold's going on a run, perhaps 2 years -- 2 years later than most people thought it would do. So the merchants are going to increase. How do you -- and I know you've described to me in an environment and your brand as it were. How do you ensure efficient running of the company going forward, everyone is on the same page. It's just human nature and when there's lots of money floating around, people get a little bit of lazy, get a little bit of cash. Well, how do you ensure that you don't?

Well, that's what management is about, aren't it. I mean, I guess...

Those are the ones I'm accusing.

No, no. Well, I mean, I guess we're all captives of our experience. I mean, if you look at my history, I was in the gold industry when gold was around $200 an ounce, $250 an ounce or something I think it was. And what I noticed at that stage of the game, I mean, everybody pulled their belt in a big time to be able to accommodate that. What I noticed in the aftermath of that when the gold price ran up. The people who let the belt off didn't do as well as the people who said, we could maintain the same practices even though we're selling and increase the margin. And that's something that remain with me forever. So our focus is on producing as much gold at the lowest possible cost every single day. And we don't look at the gold price, particularly other than for some hedging purposes or whatever. But our focus is to keep the cost down, generate as much cash as we can. We don't want to see standing here, how go -- we're 1 million ounce producer. To be frank, if we could make as much money from 500,000 ounces as others do from 1 million, we're pretty happy about that actually. So it really is about making cash. It's about making cash per share, it's about making cash per ounce, and that's the focus of our attention. It really does need everybody to realize that that's the important piece of the business.

Talk to me about ambition and willingness to build portfolio or not or time the portfolio because, M&A gets -- garners a lot of attention. It also does a lot for the safe value of the company, et cetera. But the synergies, sometimes that need to be achieved, aren't achieved. The cost of the acquisitions sometimes are expensive. And there's lots of things that can go wrong in terms of an aggressive expansion plan. How do you time -- yours have looked at the last 3 acquisitions, and there seem to be a space, like give you some time to breathe, get it on board and then think again. In a market like this, it must be slightly irresistible when you're looking around.

Well, it could be. But there's a time and a place for everything. And sometimes, you just have to sit there and sit on your hands. It's a funny thing because when you do have cash as we do, it seems to burn a hole in other people's pockets more so than it does in ours.

What do you mean by that?

Well, what it means is that they just want you to spend, they love you and they want very much to go and do so because it's exciting. Sometimes it makes sense. Sometimes it doesn't. It only makes sense if you are going to be creating value through that expenditure, that investment rather. And I think in that regard, we talk about industry and things like that. It is interesting to look at the gold business and look at it over a period of time. And the return on capital across the industry, it's pretty awful, actually. It's quite horrible. And you ask yourself the question, why is that the case? I think a lot of M&A that's occurred over the years has been pretty damn done. And you wonder why people do that, if they thought about it, they would -- but they're being pulled and pushed. They're being pulled by investors who want growth. We're not going to invest in new unless your median hours producer or unless you've got the scale. So there's a definite pull factor. Now I know the investors deny that, but that is the case. But I know that they do that because I've sat with them and talked about it. And then you get the push coming from the corporate, where I want to be a million ounce producer because that makes me a big shiner whatever the case happens to me. So you've got this interesting dynamic, and you've got a lot of drive to do transactions. And sometimes that they make sense -- sometimes they do, sometimes they don't. But there seems to be that people are kind of focusing on the wrong thing going to be 1 million ounces, but not necessarily about margin.

That's correct.

Absolutely. The very rarely, do you hear people focus on that. We just happen to be a bit different. We lag cash, we like generating cash flow, we like generating earnings. Maybe it's a function of the fact that my dad was a bank manager, and he might have beaten that into me as a young child or something rather to be.

Back in the days when your father could be some...

Of course, of course. Surprise, I use a lot.

Well, Jeff, I think that's a really good understanding of what's going on up here and what drives you and therefore, what drives the team. I look forward to seeing how the new project is integrated into the company. I look forward to continue quarter-after-quarter delivery on those answers. And of course, for me, margin is king, making money as well as about. So I appreciate your time today.

Thank you very much.