Perseus Mining Limited (OTCPK:PMNXF) Q4 2022 Earnings Conference Call July 25, 2022 7:00 PM ET
Company Representatives
Jeff Quartermaine – Mining Managing Director, Chief Executive Officer
Lee-Anne de Bruin – Finance
Paul Thompson – Business Growth
Jess Volich – Head of Sustainability
Nathan Ryan – Media Relations
Conference Call Participants
Operator
Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. All attendees are in a listen-only mode. [Operator Instructions]. I’ll now hand over to Perseus Mining Managing Director and Chief Executive, Jeff Quartermaine. Thank you, Jeff.
Jeff Quartermaine
Thanks very much, Nathan, and welcome to Perseus’ webinar to discuss our June ’22 quarter report. Now, as usual I’m joined on the call this call morning by several of my senior colleagues, including Lee-Anne de Bruin from Finance; Paul Thompson, Business Growth; and Jess Volich, Head of Sustainability. Our Head of Operations, Chris Woodall is currently on leave, so he won’t be joining us, but I’m confidence that in his absence we’ll be able to address any questions you might like to ask about our operations later in the call.
Now in this regard, what I intent to do this morning is to firstly provider an overview of what Perseus has achieved operational during the June quarter, half and full financial year, and then follow that up with a Q&A session to address any specific questions that you the listeners might have about our recent or for that matter future activities.
I should note that our audited fiscal ’22 financial report will be published on the 31st of August after our next Board meeting, at which time details of our full year earnings dividends, etc. will be made public, so that’s not part of today.
Now as usual, I’ll keep my presentation reasonably show as all the details that you need to understand our performance are fully documented in the market release. But let me highlight a few key points and then let’s discuss the detail if you wish.
It seems every time that we hold a quarterly webinar like this, you know I say about the same thing, but it really is pleasing to be able to continue reporting that Perseus’s has once again delivered a very strong production and cost performance this quarter, and that we are now firmly positioned on the tract that we promised to follow. When we release our financials in a month’s time or so, there will be further evidence of this.
So in the June ‘22 quarter, Perseus’ produced 122,327 ounces of gold, which when for the half year and the full year we produced totals of 252,850 and 494,014 ounces respectively. Our half year and full year production was comfortably within the upper half of the guidance ranges provided to the market and while the full year production was about a percent of our internal target of 500,000 ounces for fiscal ’22, there were very good reasons for this, which I’ll explain in a minute.
Perhaps more importantly in the current economic climate our weighted average all-in site cost for the quarter of US $1,004 per ounce was fairly healthy, based on a production cost of US $881 per ounce. Now this translated to all-in site costs of US $955 per ounce for the half year, and for the full fiscal ‘22 financial year US $952 per ounce, both of which were in the bottom quartile of our market guidance ranges.
Now as reported by J.P. Morgan in their recent June ‘22 Gold Sector Review, these all-in site costs compare very favorably to those of most of our peers on a global basis, particularly the companies here, based here in Australia. Like everyone else though, Perseus is battling against the global trend of rising costs, but we are managing to keep things recently in check for the time being.
As if we or indeed the market need any convincing, the operating results that have been achieved this quarter clearly show that the corporate strategy that we’ve deliberately adopted some time ago that involve transitioning Perseus to become a multi-mine, multi-jurisdictional gold company is working and working well. This strategy has enabled us to not only materially increase our production and cash flow, but do it in a way that it spreads risk across the business and despite plenty of challenges from both inside our business and outside, it’s meant that we’ve been able to stay on course and deliver on their promises, which goes to the very core of the values of this company.
During the quarter our newest mine Yaouré performed outstandingly well, relative to both prior quarters and our internal targets, producing 81,151 ounces of gold at an all-in site cost of $641 per ounce, which prices Yaouré well down the list of, in terms of the global cost code. It’s a singular production of 12,509 ounces performed slightly ahead of our target, while Edikan was 28,668 ounces fell short of our expectations.
Now there’s no escaping the disappointment of Edikan’s performance this quarter, but there were a range of factors that led to the result, one of which was the fact that and we did fall short of this during our March quarter webinar and in the March quarter report. We deliberately brought down a major preventative maintenance shutdown of the Edikan plant, and lost 19 days of production or nearly 21% of available time during the quarter as a result.
Fortunately, the over performance of the Yaouré more than compensated for the underperformance of Edikan, enabling the Perseus group to once again consistently deliver another strong quarter in terms of production and accordingly in terms of cost.
Now looking to the future, now market guidance of production and cost for the December 22 half years year is 240,000 to 265,000 ounces at an all-in site cost of $1,000 to $1,100 per ounce, which translates to approximately 493,000 to 518,000 ounces of gold at an all-in site cost of $980 to $1,025 per ounce for the full calendar ‘22 year.
So more of the same. Now, I should say that this guidance is based on our current view of the world and comes with the caveat that we done own a crystal ball. I suspect that there could certainly be some surprises in store for us all, but we’ll see. It would be the easiest thing in the world for us to provide a market guidance that we could guarantee we would meet, but it would be totally meaningless and we don’t believe that doing that makes any sense. What we will do is work extremely hard to make sure that we control all of the things that we can control, and that we deliver in-line with this guidance in the coming periods.
I am happy to report that as strong recent performance has continued in the month of July, and this does bode well for the current quarter. Since Edikan resumed milling operations in mid-June following the maintenance shut, the operation’s been running very well, and it appears as if the challenges that we faced for most of the first half of this year are behind us. Yaouré and Sissingué are also continuing to deliver as planned and so far things are looking good for another solid quarter right across the group.
Now, I should note that in conducting our mining and exploration activities across the company, we have generally continued to do this in a manner that’s in line with the sustainability standards that we’ve adopted. The exact metrics of our ESG performance are documented in full in our quarterly report; however, it’s worth highlighting just a few of these while we are on the call.
Now in terms of safety, despite a tragic and very regrettable incident at Yaouré late in the quarter that resulted in the death of an employee of one of our contractors, safety performance across our operations generally improved during the quarter with our Total Recordable Injury Frequency Rates (TRIFR) reducing from 1.45 at the end of March to 1.21 at the end of June, lower than the fiscal ‘22 target of 1.3. Lost Time Injury Frequency across the group also reduced from 0.36 to 0.17.
Subsequent to the end of the quarter, Sissingué achieved another very significant safety milestone celebrating six million main hours or personnels or about – I think there’s some 1,146 day without a Lost Time Incident. So that’s a pretty incredible performance when all is said and done on the safety products for Sissingué.
Now on the social front, Perseus’s significant economic contribution to the host countries of Ghana and Côte d’Ivoire continued, and for fiscal ‘22 amounted to around U.S. $495 million or 61% of our revenue. This included U.S. $394 million paid to local supplies representing 81% of our procurement, U.S. $33 million paid as salaries and wages to local employees, U.S. $67 million in payments to government as taxes, royalties and other payments and around, about U.S. $4 million in in social investment.
Now, these numbers are actually quite important. People will here sometimes you know government officials whose budgets are under pressure for one reason or other make statements to the effect of mining companies or foreign investors don’t pay enough dividends to their host governments or don’t do enough to help the country. This is often a very shallow and in some cases self-serving observation if I may say so, that conveniently overlooks the enormous injection of how the currency, injected by companies like Perseus into their economies. Now we are very proud to be able to contribute in this way, even if we don’t usually talk to the grandstand to highlight the work that we do, but it is important.
Now local and national employment is also extremely important and that’s been maintained at about 95% of our total work force for the quarter, and our gender balance across the group is 13% female, 87% male, which given the industry in which we operate, but more particularly the cultural orientation of the host countries is reasonable.
I should, note that the situation is quite different in our corporate office in Australia, where female to male split is 31% to 69% and within my senior management team it’s actually 40%/60%, once again reflecting the cultural orientation of the jurisdiction as much as anything.
Environmentally in absolute terms, our total Scope 1 and Scope 2 greenhouse gas emissions have increased during the year as we’ve increased our total gold production. However, emissions intensity as stated on a per ounce of gold basis have remained quite steady. Also following interest from additional vendors and also resulting from our preliminary thinking about power solutions in Sudan, Perseus is now in the process of updating our valuation of the potential use of solar power across the group and any future actions in this area will be dictated by the facts revealed by this study.
And finally on the environmental front, I guess it’s worth noting that across all of our activities we’ve experience zero environmental events, all significant tailings there, integrity issues during the period. So as a whole on the ESG front we are performing reasonably well. Despite as I said, the tragic accident at Yaouré, we are deeply committed to continuing to incrementally improve our ESG performance relative to our internal standards, and in this respect safety and the well-being of our employees is rightfully at the top of our priority list.
Now, turning to financial matters, by selling our gold at an average price of $1,705 per ounce this quarter, we generated an average cash margin of U.S. $731, roughly AUD 1,060 per ounce for every ounce of gold produced, and that resulted in national operating cash flow of $85 million or AUD 123 million for the quarter, and that amounted to U.S. $361 million or AUD 523 million for the full financial year. Now this amount, nearly 95% of it was generated by our two Ivoirean mines with the remainder coming from the Ghanaian operation.
Our gross cash and bullion on hand at the end of the quarter amounted to U.S. $328 million. After deducting our corporate debt of $50 million our net cash and bullion balance was U.S. $278 million, an increase in net cash of $50 million since the end of the March quarter.
Now just to put what I’ve said into context, I know that our national cash flow from group operations during the quarter was U.S. $85 million and our net increase in cash at the end of the quarter was U.S. $50 million, a U.S. $35 million difference between the two amounts reflects expenditure on business growth activities, including both organic growth and net transaction costs associated with the recent acquisition of Orca Gold, development capital, admin, debt servicing, taxation and dividends to shareholders and a bit of FX movement in the lockdown. For those of you who are interested, these specific numbers associated with each of these items are shown in a detailed waterfall chart in the quarterly report and I would refer you to that.
Now, speaking about business growth activities, this is another area which we’ve been very busy and pleasingly productive this quarter. Our offer to Orca shareholders to acquire all of the outstanding shares in their company was formally accepted in a general meeting with shareholders and in the Canadian courts in late May, clearing the way for us to start seriously planning our next steps in relation to the development of the Block 14 Gold project in Sudan that we believe is capable of being developed into our next large scale, long life gold mining operation.
A lot of proprietary work is underway in this front and reflecting the words of Field Marshal Rommel who once said, ‘time spent in reconnaissance is seldom wasted,’ and that definitely applies here.
We are getting to understand the lay of the land, and in fact over the weekend some important meetings were held with government officials in Khartoum to discuss the details of how we can cooperate to actually deliver this project in a cost effective and an efficient manner. That is to say, that is to do what we said we were going to do, and that’s a familiar phrase in the Perseus world.
I’m told that these discussions were indeed very, very encouraging and we’re now looking forward to starting work on the ground with an infield drilling program in block 14 later this year, as well as undertaking confirmatory work on the Water Act for an area 5 that will ultimately supply water for the operations when they are up and running. We are also starting to move forward on the front end engineering and design of the project and this work will accelerate in coming quarters.
We have been broadly targeting around the middle of next year for a file investment decision for the development of Block 14. Being conservative, it’s probably safer to say second half of 2023, on the basis that we are charting new orders by being the first industrial scale gold mine development in Sudan and working through logistics and other details does take some time, particularly when our houses are not that familiar with the processes that are involved in developing a very large scale operations such as we have in mind.
Also as announced recently, we through organic means based on expiration success, we’ve made some really strong progress towards being able to sustain the sort of production level that we’re guiding for the next half year and do that out towards the end of the decade. If you’ll recall, we recently made a market release which you are encouraged to read, on the work that has been completed at the Nkosuo deposit, which is located about 7 kilometers from Edikan’s mill in Ghana.
Now in summary what we announced was that we delineated and indicated mineral resources in Nkosuo of about 422,000 ounces of contained gold, with some additional inferred mineral resources as well. We also completed a feasibility study on the project resulting in the estimation of a probable ore reserve grading about 1.04 gms a ton, which is consistent with the material that we’re processing and containing 332,000 ounces of gold.
Now based on this study, processing of the Nkosuo ore reserves in the Edikan mill is expected to increase a lot for the Edikan operation by adding to 24 months or so, extending the mine life out to the end of fiscal ‘27. It will take us between 18 and 24 months to convert the Agyakusu exploration license to a mining lease and to obtain the necessary environmental permit for it in Nkosuo, but after that we’d be in a position to start mining and trucking ore to the mill for processing.
The recent delineation of this mineable deposit, so it’s actually a very significant achievement for Perseus. As Nkosuo is our first discovery on what we believe is a mineralized zone that stretches across three continuous separate exploration licenses in the area to the northwest of Edikan. We recently acquired the Agyakusu license on which Nkosuo is located and we also hold options to explore and acquire the other two licenses in the fullness of time if we choose to do that.
We are committed to intensive exploration of this zone though, expecting that Nkosuo will turn out to be the first of several discoveries in the area and if this is the case, further extensions of the Edikan operation beyond fiscal 2027 will be a likely outcome. Having recently invested time and money in upgrading the Edikan plant as we did this quarter, Edikan has the potential to once again become a very important piece of our diversified asset portfolio.
Now well, on the subject of organic growth, I should also mention that we have continued to make excellent progress on the delineation of a large, additional, mineral resource at Yaouré that can be economically mined using underground mining techniques. Now I don’t want to prematurely disclose details of this, other than to say that our formal mineral resources and reserves statement will be published in the September quarter, along with a feasibility study for developing an underground operation. That will also materially extend the life of the very profitable Yaouré gold mine.
Now looking further ahead at Yaouré, it’s also worth mentioning that we have started a program of very deep holes that extend below the CMA structure to investigate some apparent structures that were identified by the three dimensional seismic survey of the area that we conducted a couple of years ago. Now it’s early days for sure, but I suspect that more be said of this as drill results come to hand in coming months. But all of this together suggests that that the Yaouré mine is going to be around for quite some time.
So in conclusion, as I said at the start of the call, the June quarter, June ‘22 quarter has been yet another very good quarter for Perseus in terms of gold production, all-in site cost and cash flow generation, business development, as of course has been the June half year and the full June ‘22 financial year. We have delivered gold production and all-in site costs comfortably within stated guidance ranges, and in doing so have outperformed a lot of our peer group.
Our gold production rate is solid and slightly above the 250,000 ounces of gold per half year mark, meaning that as stated annual 500,000 ounces of gold per year at a margin of not less than U.S. $400 per ounces is sustainable. Our all-in site costs are currently very competitive in terms of our global peers and we’re managing our business successfully you know and financially in a pretty tough economic environment as we’re on the way. We’ve got some excellent growth opportunities in front of us, but as importantly we have the team to successfully execute and to unlock value as we have demonstrated several times in the past.
Now in an equity market sense, while the share price has come off the highs recorded early in the June quarter, we are holding up reasonably well relative to market peers, which I’d like to think is recognition of the fact that Perseus is now regarded by the markets as a reliably consistent mid-tier gold company that can be relied upon to do what it says it’s going to do it.
So, thanks very much for your attention today. This brings my presentation to a close and now my colleagues and I are happy to take any questions that you may have.
Question-and-Answer Session
A – Nathan Ryan
Thank you, Jeff. Your first group of questions comes from Patrick Collier at Credit Suisse. The first one is, can you please explain on the exact challenges – what the exact challenges are from processing the sedimentary material at Sissingué?
A – Jeff Quartermaine
Well, the exact challenge, the main challenge is that it slows the throughput rate down and so the amount of material going into the mill has been lower than it was – has been in the past. I think it’s also fair to say that the grade is not the same as what we were mining last year and the year prior to that where we were going through the very high grade zones. So I guess a combination of grade and throughput rates are the real impact of that sedimentary material.
Nathan Ryan
Thank you. Second question, strip ratios have declined across the group. What’s driven this and what should we expect for the December half?
Jeff Quartermaine
Well, they have declined across the group is because they are going further into the existing pits and the like. But going into the December half and into the next financial year in title, I should say that Sissingué in particular, there will be an increase in stripping ratio as we start to open up the Fimbiasso pit, etc. etc. So yes, we – it’s just the sequence in which we’re mining. There’s nothing terribly magical about it, but you know when you go and open up new pits, you do have to remove a waste material that impacts depression.
I should say that on the Nkosuo, one of the attractions of the Nkosuo deposit is that the strip ratio on that is very low. So when we get that into the mine plan in a couple of years’ time, that’ll be a big plus for us.
A – Nathan Ryan
Third question, can you give a sense of how much fuel related inflation you’re seeing in your cost basis and do you have any hedging or fixed contracts to protect against this?
Jeff Quartermaine
Okay, well fuel is an interesting one. The cost of fuel in Ghana at the moment is about U.S. $1.50 a liter, which is not too much different from Australia. Now in Ghana – and that has risen you know over the course of the last six months or so.
In Côte d’Ivoire the government there subsidizes fuel costs and so the cost there has been running around just a touch under U.S. $1 a liter for some time now. Now we do expect that the government’s ability to sub continue that subsidy is – you know will decline in coming periods and it is likely just maybe that we will see some increases in the amount of what we’ll be paying for our fuel there.
And to enhancing the question, no, we don’t hedge the oil price. We’ve looked at this on many, many occasions, but you know there’s an imperfect hedge applying between say the you know rental or WTI and the price that we actually pay in West Africa, particularly given that the government has a fair hand in the pricing of fuel there. So you know if you’re going to try and hedge it, you’re going to – someone’s going to be taking basis risk and that’s not our business.
Nathan Ryan
Your next question comes from Andrew Bowler at Macquarie. Can you talk to what the reason behind the preventative shut down at Edikan. Was it a planned shutdown that found faults or was it always planned to be that long?
A – Jeff Quartermaine
It was always planned to be a lengthy shutdown. In fact what we did do was, it was previously scheduled to occur this financial year and we decided to bring it forward into the June financial year, purely and simply because we were recognizing that there was some wearing on the girth gear and the longer that that continued, the greater the risk of catastrophic failure.
Now it would have been very easy for us to have differed to this financial year and reported production you know well over the 500,000 ounce mark and that would have been very jolly. However, had something gone wrong, we would have quite rightly been – you know been held to account for not acting sooner. So we just took the decision to close it down earlier and to do the work that needed to be done. There were a few – yes, there’s some of the work that was being done, was adjusting work that was done at the start of the construction of this thing, so we went back a fair way.
What it also did was, this is a really important point. I think is that what it also did was it allowed us to do a catch up on all maintenance right across the site. This is not similar to what occurred in 2016 actually, where we had a significant shut in 2016. But by being able to catch up on all of our maintenance and get ahead of the curve, it meant that the next four or five years were extremely good at Edikan now in terms of the operation of the mill.
We’ve used the opportunity this time around to do the same thing and certainly the results that we’re seeing in terms of the performance since the mil came back online are extremely encouraging. So we are seeing good throughput rates, very good run time. Recoveries and grade are in line with what we were expecting to see. So you know look, it did cost us a bit, there’s no doubt about that, but we think that that was money well spent in terms of the future of the company and particularly the future of the Edikan operation.
Nathan Ryan
Thank you. Your next question comes from Reg Spencer at Canaccord. He said, I understand that there is a 18 months lead time for permits at Nkosuo, but would this drop immediately into the production plan give the grades? Are there considerations for mine planning for existing Edikan reserves?
Jeff Quartermaine
Look, I’ll shoot [ph] the last. Yes, we are doing mine planning at the present time and we would get it into the mill reasonably quickly I would think once we have the licensing intact. I think at this stage of the game the scheduling has it coming in and about – I think it’s about two or three years, 2.5 years’ time from now. But look, you know we’ll make adjustments as we go forward.
The timing on the licensing is not 100% certain by any stretch of the imagination, although having said that, we did have a very productive meeting with the Head of the Minerals Commission in [inaudible] last week or the week before as it was, and he has given a very strong commitment to move this thing forward as promptly as you can, because it’s clearly in the interests of the government and of the surrounding community to have the Edikan mine going for as long as it can possibly achieve. So we are all similarly motivated in that regard.
Reg Spencer
And secondly from Reg, is the potential reduction or removal of subsidies in CID factored into the first half financial ‘23 guidance?
Jeff Quartermaine
I believe that we have made an estimate of the price impact, the exact amount of the top of my head I trying to recall, but look, we are watching that situation fairly carefully. We are comfortable with the guidance that we’ve given. We’ve looked at it very carefully. We believe that we can manage within that guidance range. We can’t control the uncontrollable, but we can certainly control a lot of what we do, and I think the challenge for us as a company is to make sure that we don’t roll over and say “Ah Gee! The world’s pretty tough. The cost will be what they’ll be.”
The cost will be what we make them, till a very large degree, so that is a challenge for us, and look, if at the end of the day we fail to meet guidance because of some unexpected event, well so be it. But what we will do is, we can give a commitment to our shareholders that we’ll be doing everything within our power to keep a lid on the costs.
Nathan Ryan
And your question comes from Alexander Paap at Citi. He’s congratulated you on another strong quarter, and then asked, at Yaouré what has been the main driver for the plus 1 million tons milled over the past two quarters. Is this run rate consistent with long term projections?
Jeff Quartermaine
Yeah look, I mean, right across the board the Yaouré plant is performing slightly better than what we were anticipating it would do. I mean and I got say that’s, you know that’s fairly common with the plan, the [inaudible] plant. I mean certainly Sissingué been running above 9 plate [ph] from day one as Yaouré I guess.
So now we are recently comfortable with the performance and we expect that to continue. I mean there will over a period of time be different ore types put through the mill, which will impact throughput rates and things of that nature. But now that Yaouré’s going exceptional well and we certainly see no reason why we can’t maintain levels around this area, throughput rates, etc. going into the future, I will say this though that, look, you know the grade is going to go up and down over a period time and there will be some periods where the grade that we process will be lower than what we’ve done this quarter, which means that we won’t be producing quite as much gold. But aside from that, the other factors run time, throughput rates, recoveries, those things are things that we can control and we don’t see any reason why we should see any decline from where we are at the present time.
Nathan Ryan
Thank you. There are no further questions at this time. So I’ll now hand back to Jeff for closing remarks.
Jeff Quartermaine
Okay, Well look, thanks very much Nathan and thanks listeners for your attention. As I said, it’s been a fairly strong quarter, but we are looking to the future with some optimism and looking forward to delivering a similar set of strong results again next time we speak. Thank you very much.
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