Perseus Mining Limited (PMNXF) Q4 2022 Earnings Call Transcript

Perseus Mining Limited (OTCPK:PMNXF) Q4 2022 Earnings Conference Call January 23, 2023 5:00 PM ET

Company Participants

Nathan Ryan – Media Relations

Jeff Quartermaine – Managing Director and Chief Executive Officer

Lee-Anne de Bruin – Chief Financial Officer

Conference Call Participants

Reg Spencer – Canaccord

Nathan Ryan

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 CEO and Managing Director, Jeff Quartermaine. Thank you, Jeff.

Jeff Quartermaine

Thanks very much, Nathan, and welcome to Perseus Mining’s webinar to discuss our December 2022 quarterly report. As in the past, I’m joined on this call by our CFO, Lee-Anne de Bruin, who will be available to answer specific questions as needed later in the call. Now both Lee-Anne and I are joining you this evening from our Yaoure Gold Mine in Cote d’Ivoire, where we are currently engaged in our quarterly program of reviewing the operations. Now the Internet and the power supply usually very reliable and sound, but if we go missing partway through the webinar, it will be because of telecommunications problems. And so I’ll apologize in advance, but let’s hope that that apology is not necessary.

And what I plan to do today is, firstly, to provide an overview of what Perseus has achieved operationally during the period ending 31 December 2022, and then follow that up with a Q&A session. I’ll keep my presentation as brief as possible with all the details that you need to understand what Perseus has achieved this quarter are fully documented in the market release that was published earlier this morning. But let me highlight a few key points and then we’ll discuss the detail if you wish.

I’d like to start saying by — started off by saying how really pleased I am that I’m able to report that in line with the trend that Perseus has gone out for some time now, we’ve delivered yet another strong gold production and cost performance this quarter, which resulted in the south performing both in our market guidance for gold production and costs in both the December 2022 half year and the full 2022 calendar year. Now for the half year, we produced 268,371 ounces at an all0in site cost of $9.30 per ounce. And in the full calendar year, we produced 521,220 ounces at an all-in site cost of $9:41 per ounce. Now both of these results outstripped out production and cost guidance, as I said. In other words, they were above the top end of the guided production range and below the bottom end of the guided cost range in each case.

Now in this regard, I also note that both the Edikan and the Sissingue mines outperformed their guidance ranges, as well, while Yaoure finished the year in the upper half of its guidance range. So a great result, will run. Now as importantly, we continue to deliver on our promises and that’s a core value of our company as you well know. Now in the December quarter itself, we produced 130,911 ounces of gold, which is slightly less than our quarterly production record set last quarter, but still a very solid result. Now weighted average all-in site costs for the quarter at $9.83 per ounce was less than the commonly used benchmark of about $1,000 an ounce and being based on a weighted average production cost of $8.81 per ounce, this is a very solid result given the challenges that exist with cost inflation as well as logistics and procurement in the world at the moment.

This all-in site cost prices for Perseus towards the bottom end of the global cost curve, a position to which we have not always been able to lay claim. Now like everyone else in the mining industry, Perseus is set to battle hard against the global trend of rising cost. We are managing to keep our costs reasonably in check, but this certainly doesn’t happen without effort. And full credit must go to our site teams who are certainly proactively looking for opportunities to reduce costs. The strong performance by Perseus over the last few years continues to demonstrate quite clearly, I think, that the benefit of our corporate strategy of transforming into a multi-mine, multi-jurisdiction company. This approach has enabled us to not only materially increase our production and cash flow, but also reduce volatility through [investors] (ph) by spreading our risk over three operations in two different countries.

Our very strong and reliable operating performance is also transformed our business financially in the 2022 calendar year, helped by a strong gold price, which averaged about $1,714 per ounce over the year. Our operating performance generated notional cash flow from operations of $402 million. And after repaying debt, our funding inorganic growth, paying overheads and declaring not only a dividend, but a bonus dividend as well. We ended the year with $405 million or almost AUD600 million of cash and bullion on the balance sheet. Now this represents an increase of about $76 million net cash relative to the end of last quarter, which translates into an increase of about $242 million or AUD324 million year-on-year, and that’s about 149% increase.

This result clearly set the company up for a very promise — has clearly set us up for a very promising future. But before discussing that, let’s talk in more detail about the immediate past as reported in the quarterly. Now for the past few quarters, our Yaoure mine has been the standout performer. And this quarter, once again, it contributed nearly 50% of our gold production, producing 65,352 ounces of gold at an-all in site cost of $7.98 per ounce, which of itself places Yaoure well down the list in terms of the global cost curve. This amount of gold production was very much in line with our expectations. And while it is less than the previous quarter, the result reflects an expected change in the mining location in the CMA pit to a slightly lower grade mineralized zone.

Now all other KPIs at Yaoure were at or above targets, including grade reconciliation where the contained ounces of gold in the ore feed to the mill equaled almost exactly the contained ounces as per the block model. So notwithstanding a slight pullback in production, Yaoure is going extremely well.

The Edikan mine, which had a trouble start to 2022, has continued to show the benefits of the turnaround first reported in the September quarter. In the December quarter, Edikan produced 53,850 ounces, about 3% more than the last quarter, and that represented about 40% of our quarterly production. And that took place at an all-in site cost of $1,058 an ounce. So a vast improvement on the cost reported earlier this year and a performance that meant that on a half yearly basis gold production was above market guidance for the mine and all-in site costs were below the guidance range as I said earlier on. The half year, on half year increase in production of 58% was quite pronounced. And I’m very pleased to say that so far this quarter, we’re getting similarly strong results at Edikan. So it certainly seems to be getting its straps very well.

Now last but not least has been our Sissingue mine. Now we — where we had another strong performance relative to plan, this quarter. In the December quarter, Sissingue produced 11,709 ounces of gold at an all-in site cost of $16.72 per ounce. Now both of these metrics were slightly better than our expectations at this stage of the mine life, and in fact resulted in Sissingue outperforming the half year market guidance as well. Now in part, this performance, the improved performance is a result of the positive 6% reconciliation in ounces contained in the mill feed relative to our block model, but most other metrics were also very strong relative to the internal targets.

Now I should point out that during the September quarter at Sissingue, we processed low grade material from small pits around the main Sissingue pit [indiscernible] being in something of a holding pattern until all in the Fimbiasso east and west pits could be accessed. Now I’m very happy to say that we’re now mining higher grade ore from Fimbiasso ease, and this will be — will we be starting to haul this back to the mill towards into the current quarter. So a step up in the contribution from Sissingue is not very far away.

So all in all, it’s been another very good quarter for Perseus in terms of gold production and costs on all three sides, as I said. And looking to the future, we expect that this level of performance will continue. So, our market guidance for production and costs for the next half year is 230,000 ounces to 260,000 ounces at an all-in site cost of $1,000 to $1,200 an ounce, which on a full year financial basis translates to something like 498,000 ounces to 528,000 ounces of gold at an all-in site cost of $1,000 to $1,100 per ounce.

Now I should also note that in conducting our mining and exploration activities across the company, we have sought to do this in a manner that is in line with the globally recognized sustainability standards that was set out in our fiscal 2022 sustainability report. Now the exact metrics of our ESG performance this quarter are documented fairly clearly in the quarterly report, but I will highlight just a couple of these achievements. In terms of safety, our lost time injury frequency rate across the group reduced from 0.26 to 0.25. The sites combined achieved a safety milestone celebrating something like 1.6 million hours without an LTI for Edikan, 17.2 million hours without an LTI for Sissingue, and more than 2.4 million hours without an LTI for Yaoure. So that was a fairly decent kind of a safety performance.

On the social front, Perseus’s significant economic contribution to our host countries of Ghana, Cote d’Ivoire and now Sudan continued and for this quarter it came to about roughly $116 million or about 33% of revenue. Now this included about $99 million paid to local suppliers, representing 80% of our procurement on a purchase order value basis, $9 million paid in salaries and wages to local employees, $7 million in payments to governments, taxes and royalties and other payments and about $1.4 million in social investment. These sums are very important to our host countries, some of which are struggling financially at the moment and we’re very proud to be able to continue to contribute in this way.

Local and national employment has been maintained at above the 95% — 90%, 95% of our total workforce. Our agenda balance across the group slightly altered this quarter with female employees reducing from 13% to 12% and consequently male employees increasing from 87% to 88% male. Given the industry in which we operate, but more particularly the cultural orientation of our host countries, these ratios are quite reasonable. To illustrate the point I noted in our corporate office in Australia, the female to male ratio of employees is about 31 to 69. So — and the senior management team, 40% female, 60% male. So that reflects the cultural orientation of Australia as much as anything as opposed to our African host countries, which have a different approach.

We had no environmental incidents of any type during the quarter and in absolute terms our total Scope 1 and Scope 2 greenhouse gas emissions has increased marginally from 0.47 to 0.5, which is not anything to be too concerned about. So on an ESG front, we’re performing reasonably well and we remain quite committed to continuing to incrementally improve our ESG performance relative to the internally adopted standards, which, as I said earlier, aligned with internationally accepted standards in the vast majority of cases.

Now turning to financial matters. During the quarter, notional cash flow generated was $101 million, which as mentioned earlier meant that for the full year, a total of $402 million of notional cash was generated from the operations. And as I said, after deducting exploration, development costs, corporate overheads, et cetera, with gross cash and bullion on hand at the end of the period was $405 million, that was made up of $361 million of cash U.S. and 24,431 ounces a bullion that was valued at spot at about $44 million. Now as I said, 149% more than at the same time last year. So that represents very, very strong growth in this area.

Now during the quarter, we did repay the outstanding balance on a corporate debt facility, so that has left the debt balance at zero. Now you may recall also at the end of the last quarter, at the end of September, we were carrying 93,634 ounces of bullion on hand as a result of some timing issues that we were dealing with. But as has promised [indiscernible] price was fixed at the time of reporting was delivered into forward sales contracts this quarter, reducing gold inventory, but more importantly, boosting our cash balance just as we said it would.

Now speaking of gold price hedging, Perseus currently has a mix of designated forward sales contracts and spot deferred contracts covering about 345,000 ounces of gold at a weighted average sale price of $1,906 an ounce. Now this represents about 23% of our production on a three year rolling basis and is important to us as even if the gold price weakens we laid current levels as a result of strong USD or some other fact that Perseus’s projected cash flows are to a large extent underwritten. Now right now, Perseus is generating a lot of cash and its balance sheet is very strong. Pricing is in a position to fund all of our activities, including exploration and the development of new projects such as the Meyas Sand Gold Project in Sudan and the continuation of our dividend policy from existing cash balances that will add any future cash balances. A very nice position to be in.

Now speaking of business growth activities, this is another area which we’ve been very busy and pleasingly productive this quarter. Turning firstly to our latest acquisition, the Meyas Sand Gold Project, which was formally referred to as Block 14 in Sudan. Now as reported last quarter, we had awarded a 100,000 meter drilling program to Capital Drilling, a very highly regarded international drilling company. And during the December quarter, they mobilized site and have started drilling at the site of the Meyas Sand project. Their designated task is to firstly perform infill drilling on the main deposit at Meyas Sand to convert inferred mineral resources into measured and/or indicated mineral resources that we can incorporate into a ore reserve estimate and the mine plan. In addition, they had another local drilling company tasked with performing sterilization drilling to ensure that proposed sites for plant waste dumps and turning stamps are not in [indiscernible] located on top of valuable mineral deposits.

During the quarter, we also continued to work closely with Lycopodium, our engineering contract — contracted to advance the front end engineering and design study. [indiscernible], of course, prepared the definitive feasibility study for the previous owner of the property. So they’re very familiar with the project. And of course, having worked with our construction team before on a couple of occasions. They’re also very familiar with the exacting standards that Perseus will require when the project is to be built.

Now at this stage, it’s a case of checking assumptions and incorporating the extensive lessons we have learned from the development and the operation of both the Sissingue in the Yaoure plants, both of which were built by Lycopodium on our behalf. And both of which are running very, very well, I might add. And very importantly, the other task that needs to be done is to confirm the capital budget. Now as part of the FEED study, we’ve also completed confirmatory pressure testing of the water aquifer in Area 5 that will ultimately supply water for the Meyas Sand operation when it’s up and running. Once again, the contract is used for this exercise, AGE Hydrology have a lot of experience in Sudan. And based on the results we’ve seen to date, we expect that it will be confirmed that the aquifer has more than enough capacity to satisfy all of our water requirements for the entire life of the Meyas Sand gold mine, as well as to satisfy a number of community projects that we’re currently considering.

Aside from the above, there is a lot of work happening on the ground in Sudan in preparation for an influx of a large number of workers to the Meyas Sand site once construction starts. Things are tracking very well in this regard at the moment and we are grateful for the terrific support of our project that we’re receiving from key ministers and the departments within the Sudanese government. Now given the above, we’re currently targeting taking a financial investment — a final investment decision on the development of the Meyas Sand project in the second half of this year, most likely early in the third quarter.

Now in terms of funding the development project, we expect to be able to fund the entire capital cost of development from existing cash balances available at the end of the current quarter. So this assumes that our earlier cost estimate of something in the order of $45 million to develop the mine is confirmed by our current FEED study. Notwithstanding a strong cash balance, we are investigating several debt financing options. And if we proceed with one of them, we’ll be able to not only fully fund the development of the Meyas Sand Gold Project, but we’ll also have significant capacity to pursue other growth opportunity should they come along.

I have to say that, ownership of the Meyas Sand Gold Project gives Perseus a distinct first mover advantage in to them, a country endowed with enormous mineral wealth and one that is keen to welcome foreign investment. And I’m pleased to say that several other exploration, pre development opportunities are starting to emerge as a result of our presence on the ground. It’s much too early to be talking about any project beyond Meyas Sand Gold Project at this stage, given that rich mineral [indiscernible] it’s not difficult to envisage that Perseus is operating footprint in today and could expand the fullness of time. And we’re very well positioned to make that happen.

Now, while on the subject, [indiscernible], I should say that Perseus does not take sides in political debates in our host countries, but we are greatly encouraged by recent moves in Sudan to bring together all sides of politics to reach a court and a mechanism for guiding the country forward in a peaceful and stable manner. Now whether this results in the civilian led government and peaceful democratic elections within a couple of years will be evident very shortly. In fact, I was reading today that I think that might be the case in early February. But from all the appearances, the goal certainly appears to be within reach, which is good for all stakeholders, including the citizens of Sudan and of course Perseus.

Now moving on to other organic growth initiatives. As announced recently, we have through exploration success close to our existing infrastructure made pleasing progress towards being able to sustain our targeted production of 500,000 ounces plus of gold per year towards the end of the decade without taking into account any M&A or greenfield development activities that might come our way. Following the end of the quarter, we issued a market release detailing the results of ongoing exploration during the quarter to date at Yaoure gold mine where drilling has returned high grade gold results from the CMA Northwest and CMA North targets down dip from the recently announced underground ore reserves. And what this does? It demonstrates that there is really significant potential for further underground resources growth, which will lay to the development of an underground mine here at Yaoure.

Now in Ghana, following the release last quarter of an indicated mineral resources in Kasoa, as well as completion of a feasibility study on the project resulting in a probable ore reserve of about — containing about 332 ounces of gold. We’ve recently applied to the Ghanaian Minerals Commission to the land covered by Agyakusu exploration license that hosts the Agyakusu deposit to be incorporated into our mining lease. Now last week Ghana had very encouraging discussions with the authorities that should result in that expanded mining license being issued fairly shortly, which will allow us to upgrade our life of mine plan to include an operation involving trucking ore from Agyakusu to the Edikan plant for processing.

During the quarter, we also exercised options to buy the Agyakusu DML and Domenase exploration licenses. The transfer of these licenses into Perseus’ name has received ministerial approval and the transfer process should be completed within days if it hasn’t already happened actually. This will enable us to start drilling three more exploration targets that have been identified on our land package near Edikan. And if they live up to the potential shown or even one or two of them, this could provide further extensions of the life of Edikan operation. Now having recently invested time and money in turning the Edikan operation around, being able to extend the Edikan mine life has a lot of merit in terms of upgrading the quality of our asset portfolio.

So in conclusion, as I said at the start of the call, each of the December 2022 quarter, half year and full calendar year has been outstanding for Perseus in all fronts, including gold production, all-in site costs, cash flow generation and business development. And pleasingly, the switch being conducted in a safe and sustainable manner in line with our targeted standards. We have delivered gold production and all-in site cost that’s comfortably beaten their half year and full year market guidance. And in doing so, we’ve outperformed a lot of our peer growth. Our all-in site costs are currently very competitive in terms of our global peers and we are managing our business successfully in a tough economic environment with excellent growth potential in front of us in the form of the Meyas Sand Gold Project and from the exploration successes that we’re cropping up adjacent to existing infrastructure at our mines. We’re traveling pretty well. But I guess as importantly in this respect, we’ve got the human capacity and its existing financial means to successfully execute and unlock the value as we’ve demonstrated several times in the past.

In an equity market since our share price is holding up well and we’re performing recently strongly relative to our market peers. In fact, I think that in terms of market cap, we’re now Australia’s fourth largest listed gold producer and we present a very viable alternative to investors seeking to invest in high quality gold stocks.

Before concluding, I do want to acknowledge the contribution made to the success of Perseus over the last 12 months by all of the men and women in four countries that make up the Perseus team. They’ve done an outstanding job, and I’m very fortunate that I’m my current round of side business, as I said, the start of the Cote d’Ivoire currently on-site at Yaoure. I’ve had the opportunity to thank them all personally for their great efforts in delivering on our promises.

Okay. Thank you very much for your attention today. This brings my presentation to a close, and now we’re available, Lee-Anne and I are available to take any questions that you might have.

Question-and-Answer Session

Nathan Ryan

Thank you, Jeff. [Operator Instructions] Your first question comes from Reg Spencer at Canaccord. Go ahead, Reg. You’re on mute Reg.

Reg Spencer

That’s much better. Thanks, Nathan. Good morning, Jeff and Lee-Anne. Just a couple of questions from me. FID from Meyas Sand or Block 14, as it was formerly known. When might we expect some updated metrics, be that CapEx or OpEx for that project? Will that be ahead of FID, noting that there still does appear to be some relatively strong inflation or industry inflation around at the moment? And then as part of that question, how acute might those pressures be in Africa versus somewhere like Australia do you think?

Jeff Quartermaine

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

Reg Spencer

Great. Thanks, Jeff. And just over at [Fimbi] (ph), I hope you have finally some programs into Bagoe. Can you just remind me of what the rough grade profile might look like at Fimbiasso until you get into Bagoe? Is there any change from the previous life of mine plan or should we just stick to what was in there previously?

Jeff Quartermaine

Yes. No, it’s no changes to the grades that we reported in the past. I mean, I think the average over the next couple of years of gold production [indiscernible] I think it’s 72,000 ounces a year on average. One of those years is quite a bit better than that and one of it’s a little bit lower. But I think that what we’ve given the market today is what we’re expecting to see.

Reg Spencer

Okay, excellent. That’s all for me. Thanks, Jeff. Thanks, guys.

Jeff Quartermaine

Thanks, Reg.

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, thanks very much. I have played the lack of questions means that we’ve answered all of your thoughts. It has been a good quarter. As I said, we are very pleased with the way things are tracking and certainly this quarter is delivering more of the same. So we are in a fairly healthy place right now and we’re certainly looking forward to bringing further updates during the course of the quarter to you as news comes to hand. But anyway, we are in a very strong position and we want to thank our shareholders very much for the support that they’ve given us over a long period of time. It is certainly starting to pay off. Anyway, thank you very much. We’ll talk again in a few months’ time.