Perseus Mining Limited (PRU) Earnings Call Transcript & Summary

[Operator Instructions] I'll now hand over to Perseus Mining Executive Chairman and CEO, Jeff Quartermaine. Thank you, Jeff.

Thanks, Nathan, and welcome, everybody, to Perseus Mining's webinar to discuss our September '24 quarter report. I'm joined on the call once again today by our CFO, Lee-Anne de Bruin. Welcome, Lee-Anne. Both Lee-Anne and I will be available to answer any questions that you may have later in the call. Now as usual, the agenda for today's webinar is that, firstly, I'll provide an overview of what Perseus has achieved operationally during the quarter, with some help from Lee-Anne. And then following a brief summation by me, we'll have a Q&A session to dive into any specific matters that have not been addressed earlier on. For those of you who are listening to the call on your computer, I've shared my screen, and you should be able to track the presentation virtually. I'll try to keep my presentation as brief as possible. All the details that you'll need to understand, what we've achieved this quarter, are fully documented in the market release that was published earlier today. But I will highlight just a couple of points, if I may. So as the title of our quarterly report says, our team at Perseus has continued to deliver very consistently strong gold production and free cash flows and growth, resulting in a growing cash and bullion balance that amounted to USD 643 million or AUD 960 million at the end of the month. During the quarter, we've advanced both our CMA underground mine development at Yaouré and the Nyanzaga gold project in Tanzania, where our firm investment decision on developing our next mine will be taken shortly. Both of these projects will enhance our ability to continue to produce results, such as those delivered this quarter, for many years to come. So without further ado, let's take a close look at the scoreboard and seeing some detail, just what I'm talking about. So moving beyond those cautionary statements. So for the quarter, we delivered 121,290 ounces, which was slightly up on the previous quarter. The all-in site cost was $1,201 an ounce, which was up $28 an ounce on the previous quarter. I should say that, in that period of time, the gold price has moved up quite a bit and a significant portion of that 28% (sic) [ $28 ] per ounce rise can be attributed to an increase in royalties that have been paid as a result of the higher gold price. The average sale price for the quarter was $2,249, as I said, up a bit, quite a bit on the previous quarter. Our cash margin across the group is a little over USD 1,000 per ounce, also up on the previous quarter. Notional cash flow, USD 127 million, leaving us, as I said earlier, a cash and bullion balance $643 million at the end of September, which was $56 million more than what we had at the end of June, and that was a -- notwithstanding the fact that during the quarter, we did make some investments as well. So what we've done is, we've ensured our capability of being in a position to continue to fund growth and capital returns to shareholders. Now all 3 mines continue to perform fairly consistently across the group despite the occasional operating challenge. The temporary rise in all-in site cost was expected and was flagged last quarter, but we do expect that this will fall back as Yaouré gets its mining in order, which it has done this quarter. The gold prices, obviously, you can see from that chart, continue to rise steadily during the quarter. I noticed it's up again this morning. It's very nice. Steadily expanding that cash margin, the all-important cash margin, that's contributed to the overall cash and bullion balance. And I am pleased to say that the strong operating performance that we saw in the quarter has continued into the current quarter. In fact, it's actually even stronger so far to date in the month of October. Just very pleasing. Now looking at the individual mines, Yaouré produced 47% of our production. So that's a little down on its normal contribution. And as I said, at $1,226 an ounce, it was up quite a bit on the previous quarter. And we did flag that as being something that would happen as the mining contractor work to recover the shortfall in their performance in previous periods. Now I'm happy to say that, that has happened and they're no longer in default, and that we will return to normal mining volumes over the coming quarter. And accordingly, we expect that the all-in site cost will drift down to significantly lower levels from where we are right now. Notwithstanding all this, the cash margin at $998 an ounce was fairly healthy, and we generated $56 million of notional cash flow from Yaouré during the quarter. The one statistic that did stand out that does warrant some comment is the reconciliation that we got from the block model to the mill this quarter, which was unusual, relative to where we have been in the past. So I'd just like to address that point before anyone asked questions about it. This quarter, production came mainly from the CMA ore body, which, over time, has been a very reliable producer, and is previously reconciled very well. The ore body consistently reconciles with slightly higher tonnes, slightly lower grade than predicted by the resource estimate. And I suspect that, as much as anything, that's a function of the modeling technique that we've been using, the Multiple Indicator Kriging. But overall, if you look at the reconciliation on the life of the reserve to date, it's been about 120% on tonnes, 92% on grade, about 110% on contained gold. So that's been a good thing. The recent lower grade reconciliation is expected to be temporary. We anticipate that we'll get back to historic levels next quarter as mining moves to more consistent areas of the ore body. Quite often, what does happen when you get on the fringes of the ore body, it does get a little bit loose. But historically, the CMA has shown very strong reconciliation. And as I say, we do expect to get back on track on that fairly quickly. Now if we turn to Edikan, it produced about 40% of the production this quarter. Very good performance from Edikan, I have to say, right across the board. The all-in site cost of $1,000 an ounce, $1,021, was pretty much the same as last June. Now that's a fairly commendable performance when you consider that's an all-in site cost, straight cash out the door . And the cash margin of $1,276 per ounce gave a fairly healthy cash flow of about $61 million for the quarter. Reconciliation at that mine has been pretty good. They're about 8% negative on tonnes, 6% positive on grade. So 2% negative on contained ounces, and that's very, very acceptable. The biggest challenge we have going forward there is finalizing access to the Nkosuo deposit that we want to bring into the mine plan fairly shortly. We are having some challenges on finalizing that access. And if we are unable to solve that in the foreseeable future, then that could impact production next year. But we've got a fair bit of work to do there, but that is something that is taking quite a bit of focus at the moment. Sissingué. Sissingué had a very disrupted quarter. It had something like 1,645 millimeters of rain this financial year-to-date. So very, very wet. And we've had rain in the past, but this quarter, it also not only affected mining, but also the transport of ore from the remote satellite deposits back to the main processing facility. 78,066 ounces were produced during the quarter, which was down slightly on the June quarter. The production costs there remained elevated versus as you've seen in the past, $1,621 per ounce. The net margin was $569 an ounce and generated about $10 million of free cash flow in the quarter. The reconciliation there was pretty reasonable, actually, all things considered. And looking to the future there, we've -- the Bagoé exploitation permit was finally signed by the President, and that has put us in a good position to look at construction, et cetera, in preparation for ultimately moving the mining activities from the asset deposits down to Bagoé next year sometime. So all in all, we're in pretty good shape in terms of the guidance that we've given to the market for this current half year, 220,000 to 260,000 ounces. My thinking is that we will end up in the upper half of that, at least. And in terms of the cost guidance that we gave of $1,230 to $1,330 based on the costs at -- for this quarter, we're actually below the bottom end of that range. So I do think that come the end of this half year, we will be in very good shape relative to the guidance we've given to the market. And once again, be able to say that we've done what we said we were going to do. Now looking at the financial position, I'd just like to ask Lee-Anne to perhaps explain to you a few things here, which I think are quite important in terms of being able to reconcile the costs that we're reporting with some of our peers in the industry.

Thanks, Jeff. As you are all aware, we've traditionally reported an all-in site cost, which is a pure cash number that has had quite a lot of clear leads around our alignment with the all-in sustaining cost that was set out by the World Gold Council. So we've popped this graph and just to give everybody an indication of what that would look like. And so we'll go through it a bit. Our all-in site cost, as Jeff has mentioned, it was $1,201. All-in sustaining cost, in line with the World Gold Council, is calculated on gold sold versus we calculate ounces of gold produced. We've also had to put through inventory movements between lines with the International Financial Reporting Standards and what those relate to is, during the period, mining and buildup of stockpiles, particularly at the Yaouré mine site, which would result in a credit when it gets taken to the balance sheet. We then also brought in our corporate admin costs, which resulted in an all-in sustaining cost for the overall group of $1,040. And importantly, it was captured in the quarter, which, as we have done over the last couple of quarters, relating to the fact that both all-in site cost and all-in sustaining cost do carry in them an amount of USD 5.8 million relating to waste stripping. And this, we put into the income statement, gets capitalized to the balance sheet. So we're hoping that this will help people in forecasting our profit numbers that's come out in our December financials. Moving on to the cash flow and the balance sheet. Interesting why we put this table, just to give everyone a sense of where our cash has gone or being generated during the period. As Jeff mentioned, we had cash and bullion on the balance sheet of $643 million with 0 debt. And this was, what, a $56 million increase in our cash and bullion. One of the key things mentioning there is our operating margin was $97 million. We continue to make contributions to the government with tax payments in our host countries of $16 million. And then also we have, what I'd call, our noncontrolled interest payment, which is further contributions to the government in relation to dividends declared out of our operations. And the operating cash flow contributed was 33% from Yaouré, 56% from Edikan and 11% from Sissingué.

Okay. Thanks, Lee-Anne. Now the relevance of that cash and bullion balance at the end of the period, it's very important, actually, because in front of us, we do have some work to be done in the short future. The first of these is the CMA underground development that we've been talking about for some time. The final investment decision has been moved from October to November. So no, there's nothing too much about that. The critical activities that we've been involved in during the quarter is recruiting the underground mining team. We've got a lot of people on our staff who are experienced in underground mining. But we did need to bring in a number of specialists for the task, and we have been working through that. The other key activity has been locking down the mining services contract, and we are very near to finalizing that and selecting a preferred contractor very, very imminently, and enabling that contractor to get on with mobilizing for next year. Now the fact that we've delayed that by a month has no impact whatsoever on the mobilization time, we believe, and we should be moving on. The things that we've also been working on, we are waiting still to see the underground mining legislation. This is the first underground mine in Côte d’Ivoire. We've been told that it will be released in November this year. But failing that, a ministerial order will be issued to enable us to move on to the next step. So that's important. And during the quarter, the environmental impact people have asked for us to update our ESIA for the Yaouré site to take into account the fact that we're going to be mining from underground. It actually doesn't have too much impact at all. But nevertheless, they do need to have that document. So we are working on that at the present time. Now what it looks like in terms of the overall schedule, as I say, looking at making that final investment decision now in November. We are working on upgrading facilities on the site, and that will continue. And we will see the mobilization of the contract through April -- Feb, March, April next year. And we'll see some work start on the portals in July and then push on to first production shortly thereafter and commercial production in '27, which is more or less an accounting definition but -- as we'll be getting into mineralization right from the get-go on the mine. The other area that we'll be spending money in the future is on the Nyanzaga mine development project, where we're fairly busy at the moment, working concurrently on 5 work streams. So the first of these is the implementation of the resettlement action plan, and we've awarded 2 contracts to Tanzanian builders to build the first 220 of these houses. An additional contract for another 11 will be awarded later in this quarter. Construction work has started. 23 homes are under construction. We are focusing very much on foundation works in the area at the moment to try and get ahead of the wet season, which you'll be coming along soon enough. We've also been working on early works, building up construction capability, et cetera, et cetera. So a lot of work going on around the construction camp, building facilities, et cetera, calling tenders for various services that we're going to need as we go forward. And also getting prepared to build the Ngoma bypass road. That's a small village, not far from where we are. And we want to make sure that our construction traffic doesn't disserve people in that area. So we're going to build a diversion road, and we're currently compensating people for that layer [indiscernible]. The other thing we're doing is we've got a couple of contracts for drilling. We've done about 8,000 meters so far doing resource confirmation, but also geotechnical and hydrological drilling, doing some sterilization on the site to ensure that we don't put facilities in the wrong place, et cetera, et cetera. So that work is going on, and the data from that is being fed into a range of feasibility studies of different areas of the business going forward. The key area of the front-end engineering and design is well underway with Lycopodium, optimizing the engineering and the capital cost estimates. We have decided on an optimum-sized mill. It's going to be a 5 million tonne per annum operation. We've got quite a bit of data coming through on the capital budget. The first pass capital budget will be available for us to review in November. As I say, we've been working on the plant sizing and done a 3D model, which I'm going to show you a picture of that in a minute. The other piece of really important work is discussions with the office of the Tanzanian Treasury Register, the TR, and the Tanzanian Investment Center on clarifying some aspects of the existing framework agreement and mining legislation and regulations. This is important as we want to be starting this exercise with a clear understanding of the regulatory framework that we're operating under. Now in terms of the schedule going forward, you can see we've ticked off a few items so far, a few more to come. A lot of work going on. The basic aim is to take that investment decision in early January and immediately award contracts, et cetera, and get underway with the site works later that month. We had been saying December, but it's just a matter of availability of people as much as anything, and then we'll get underway. And then the aim is to pour first gold in January '27. So that's a schedule that we're working furiously to ensure that we keep into and to get this first project underway in Tanzania. Now just a couple of photos to illustrate the work. As I say, we've been working at foundations in a lot of areas. We are about to see a wet season come upon us, and we want to make sure that we can continue construction all the way through that without any interruption. And as I say, we've also been doing quite a lot of work in the FEED area, coming up with 3D designs for the plant, et cetera, et cetera, to be able to play in activities a little bit more carefully. So everything is moving forward, and it's looking pretty strong. Now the other thing that we did during the quarter, which people will be aware of, is that we made a few changes to some equity investments that we hold. Early in the piece, we announced that we had acquired a 13.82% strategic interest in Predictive, and we'd acquired a further 3.45% through some cash-settled equity swaps. As people know, Predictive is an emerging mineral development company, exploration and development company, whose key asset is Bankan project in Guinea. And they've reported, through their feasibility work, a fairly healthy gold resource and reserve, 3.5 (sic) [ 3.05 ] million ounces is their reported number. And that certainly is something that's of interest to us. Now also, during the quarter, we sold our 9.6% interest in gold explorer and aspiring developer, Montage. They have a property in Côte d’Ivoire, and we were able to release about $45 million of cash from that investment. This was something of a surplus asset that we acquired when we took over Orca Gold a couple of years ago. We were able then to apply those proceeds to topping up our interest in Predictive. And by the end of the quarter, we held a 19.9% interest in that company. Now at this stage, we have no intention of making a further bid right now. The task for us is to really understand the nature of the project that they have and the regulatory regime, et cetera, et cetera. And if we get comfortable with that work, then something may happen beyond that point. But we will have to see. There's a fair bit of work to be done before we get too carried away on that front. We've been continuing our other exploration work and studies around the various operations. As we've always said, organic growth near the existing infrastructure is the best and most productive work that we can do. Now at Meyas Sands, we've also been continuing to explore on the tenement. The disturbance in the country there is nowhere near resolution as far as we are aware. So we're just keeping our head down and expanding the nonmineral resource until we can see what direction things are going, and so that's all productive initial work. We're also doing quite a bit of work, as I mentioned, in -- at Nyanzaga, trying to put ourselves in a position to really understand that ore body before we get too far down the track. I said at the outset, we do take our responsibilities to our host countries pretty seriously, our host communities and to our people. Our safety performance across the group has been really good, actually, down slightly in terms of TRIFR on a previous period. And our Lost Time Injury Frequency Rate is stable at 0.15. And those are the results that are very credible, I think, in a company. Our community contributions continue to remain high for the countries where we are operating, around USD 150 million, which is a significant sum, about 60% of revenue going through the economies of our host countries. We buy quite a lot of our materials locally. We employ locally. Something like 95% of our employees come from the countries where we operate. And as it reflects the culture of those countries, our ratio of females to males is relatively low by Western standards, but nevertheless, we do work in that particular area. And environmentally, I mean, there's been no major issues. We work at keeping our greenhouse gas emissions, et cetera, under control and turning in a reasonable performance on that front. Now one thing I did want to just point out before closing, I guess, is as well as we've done over time, and certainly, our share price has reflected that, there is -- we are still carrying what people call an African discount relative to our Australian peers and also, in fact, to some of our Australian -- some of our African peers. I mean the investment metrics are still extremely attractive at these levels. And we're running on a price-to-earnings ratio of about 7% on EV to cash flow of about 5%, which is fairly modest. But I think the important numbers that one really should focus on is the fact that we -- our operating cash flow per ounce is about USD 819, which is a fairly significant sum of money and has led to the cash balances that I referred to earlier, which is about $0.64 a share. Now the point is that what a lot of investors are looking for, of course, is stability in the company, say, investing and wanting to be able to know that things are going to remain stable. Certainly, these metrics here indicate that, that is the case. So before we open up to questions, let me just say that I did say at the start that we had a strong quarter on all fronts, including production cost, cash flow, et cetera, et cetera, and that certainly is the case. And I also mentioned that, pleasingly, this work has been conducted in a safe manner and ahead of our targets -- our safety targets and materially better than many of our peers around the world, notwithstanding the fact that our business is conducted in so-called lesser-developed countries on the African continent. Now as a company, we continue to generate material benefits for our stakeholders, including host governments, communities, employees, providers to goods and services and, very importantly, our investors. And so in doing this, we are consistently achieving the stated mission of the company. Now looking forward, our production and cost guidance for the 6 months to December is predicting another solid performance. And after about [ 51% ] over the 6-month period, it's pretty clear that we're on track to deliver as for production and cost guidance, if not beat it in the case of costs, and once again, do what we said we're going to do. Our group's financial fortunes are certainly strong and assisted greatly by the gold pros. So I have to say, particularly noticing this morning at around USD 2,750 ounces is at a fairly healthy price. But through effective cost management, our cash balance continues to remain very strong, million, billion dollars Australian, enabling us to pay significant sums of money and tax and charges to our host countries to continue to fund organic growth and return cash to our shareholders. Now speaking of our capital management strategy as well as declaring a final dividend in August that brought the total dividend for the year to $0.05 a share or 2% yield based on the share price at the end of June, we've also embarked on a maiden share buyback of up to AUD 100 million of our stock. Now so far, the volumes of stock purchased have not been overly large. However, once we get out of the various blackout periods associated with reporting reports like this one today, we will be able to buy more stock, provided that our pricing targets are met. Now going forward, in terms of future cash management, we do need to bear in mind the fact that we will need to fund the development of Nyanzaga project from the start of '25, and we currently estimate that, that cost is going to be in the order of USD 450 million to USD 500 million. However, as you've seen from today's report, we are continuing to generate strong cash flows every day. So we will have plenty of capacity for that and further initiatives, whether this is in Guinea or Sudan or any of the other countries where we're invested. The concept of maintaining a diversified asset portfolio is very important to us here at Perseus. We believe that through engaging in multiple operations in multiple countries, we're able to remove a lot of the volatility that comes with operating on the African continent. And importantly, what this means that, as an investor, if you hold shares in Perseus, you can be reasonably confident that when you wake up in the morning, no matter what has occurred overnight or elsewhere in the world, your investment in Perseus will remain solid and in good hands. Now finally, in conclusion, I do once again want to acknowledge the wonderful contributions that have been made by all the men and women that make up my colleagues on the Perseus Board, management and operating teams in what is now the 5 countries in which we operate, including Australia, where we're headquartered. In recent months, we've had a few additions and changes to our Board and management team to cater for the growth in activities that we're undertaking. Change is always accompanied by a little uncertainty and discomfort, but it does seem that we're taking these changes in a stride and moving forward very strongly. And there's no doubt that, as a team, our people are strongly supported by their families and continue to do an outstanding job. And I sincerely thank all of you, and I know that many of our employees do listen to these calls, on behalf of all shareholders, for all your efforts in helping us to continue to deliver on our promises. Now at this point, I'd also like to acknowledge the contribution made to Perseus by one of our directors, Dr. David Ransom, who sadly passed away during the quarter. We invited Dave to join the Board of Perseus as a Non-Executive Independent Director in 2019. In his time with Perseus, Dave's intelligence and knowledge became widely known throughout our company, and he was deeply respected by all who had contact with him. But more than that, he was greatly appreciated as a very humble, kind and wise person. When he talked, people listened. He made a significant contribution to Perseus, especially in his field expert of geology and exploration, where he kept our teams on us with incisive and intelligent questioning of their work and ideas. And his judgment in these areas was second to none. It was with great reluctance that we accepted Dave's resignation as a Director in July this year as his health took a turn for the worst. But it was with profound sadness and shock that we learned of his passing just a short time later. Dave is a true gentleman and deeply loved and respected by all he knew or had the opportunity to become his friend. Thanks very much for your attention today. This brings my presentation to a close, and we're happy to take any questions that you might have. Thank you.

Thank you, Jeff. Your first question comes from Richard Knights at Barrenjoey. [Operator Instructions]

Just a quick one around Edikan and Nkosuo satellite deposit. Can you give us a bit more color around what the critical path is in terms of finalizing those negotiations with the farmers? And what's the risk to potential 2025 production if we can't come up with a solution in the next sort of 6 months?

Well, the critical part is that we need to convince all of the farmers in the area to accept compensation from us and allow us to maybe -- now most of the farmers have agreed to it. I think there's something like 27 or so that are still not enthused by it. However, having said that, 20 of them have allowed us to conduct the surveys and to work through the compensation. And I think the remaining 7, another 3 or 4 are in dialogue with us. So we are making progress. How long it's going to take to settle remains to be seen. I can't put a date on it because it will happen when it happens. But you can be sure that we're certainly working on it. We would like to get it done as soon as practical. The other ore bodies, the AG and Fetish pits, say, start to run out of ore after the first quarter of next year. So clearly, time is of the essence, but we do have other sources of oil on the property. They're not as attractive as [indiscernible]. But nevertheless, we weren't stopping operations, but it could impact our production in that period of time, so in the -- what's that, the June quarter of next year, if we don't get our thoughts together clearly. But look, this is an issue that is not unheard of in any part of the world. I mean, Australia, when you're looking to open up a mine and [ resume ] farms people, particularly when they've held the farms in their family for many generations, are not always enthusiastic. So we just need to go through the process, be reasonable with people and explain to them what we're doing, and then we'll be fine. I mean, we do have the full support of the government, I might add, the Minerals Commission, the EPA, the COCOBOD, most of these guys being cocoa farmers. They're all supportive of what we're doing. And it's just a case of being able to work it through with our host community.

Your next question comes from Andrew Bowler at Macquarie.

Jeff and Lee-Anne, I think you covered off on my question, and as well from Richard's question. But also can you set the color on inventory movements. Is that something you plan on disclosing with every quarterly now?

Sorry, you just broke up a little bit. What did you say, please?

The question is the inventory movements. So appreciate the extra color. Is that something you plan on reporting going forward?