Perseus Mining Limited (PMNXF) Q2 2024 Earnings Call Transcript

Start Time: 17:00 January 1, 0000 5:35 PM ET

Perseus Mining Limited (OTCPK:PMNXF)

Q2 2024 Earnings Call Transcript

January 23, 2024, 17:00 PM ET

Company Participants

Jeff Quartermaine – Executive Chairman and CEO

Lee-Anne de Bruin – CFO

Nathan Ryan – IR

Conference Call Participants

Nathan Ryan

Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. All attendees are in a listen-only mode. If you would like to ask a question directly to the company, please use the raise hand function within Zoom.

I’ll now hand over to Perseus Mining Executive Chairman and CEO, Jeff Quartermaine. Thank you, Jeff.

Jeff Quartermaine

Yes, thank you, Nathan. And welcome everyone to Perseus Mining’s webinar to discuss our December ’23 quarter report. As usual, this morning here in Perth, I’m joined by our CFO, Lee-Anne de Bruin, who works with me here in Perth, and who’s been very good to get up at six o’clock in the morning to participate in the call.

And we’ll be available, both of us, to answer questions a little bit later as needed. Now, the agenda for today’s call is that firstly, I’ll provide an overview of what Perseus has achieved operationally during the quarter, and as relevant, post the end of the quarter. And as I said, then we’ll have a Q&A session in which Lee-Anne and I will be happy to address any questions that you may have about either the quarterly report or our business in general.

I expect that given our recent announcement regarding our intention to make an offer to purchase all of the outstanding OreCorp shares, you may have some questions on this. And if so, I’ll be more than happy to discuss this with you at the end of the presentation. Now, as usual, I’ll try and keep the presentation as brief as possible.

There’s all the details that you really need to understand what Perseus has achieved this quarter are fully documented in the market release that was published earlier today. But let me highlight a few points. And for those of you who are listening to this call on your computer, you should be able to track my comments visually on your screens with the presentation.

Now, I guess it’s starting to become a little bit repetitive on these webinars, but once again, this quarter, our team at Perseus has delivered another very strong operating performance, not only in terms of gold production, but also all inside costs and cash flows, but right across the company, including the business growth area where we are endeavouring to expand and upgrade the quality of our asset portfolio. The strategic benefits of having multiple mines in our portfolio has once again been ably demonstrated this quarter.

So Sissingué, the mine that had an awful September quarter due to very heavy rainfall has improved dramatically. Edikan just continues to power on, performing on target week in, week out, much to the surprise of some of the commentators who were critical of Edikan in its early years. And Yaouré, for the first time in its history, has experienced a few challenges, but is still the powerhouse of our business.

So across the three operations, things are balanced out and the group has done very well. Now, notwithstanding the ups and downs of mining, we’ve, as I said, done very well, comfortably achieving production guidance and comfortably beating our cost guidance and simply continuing to do what we’ve promised to do. A bit boring perhaps, but good from our point of view.

So without further ado, let’s turn to the scoreboard, as they say, and just see what I’m talking about. So if we look at the operating results for the quarter, so 128,773 ounces were produced, which is slightly down on the prior quarter. All insight costs averaged $1,023 an ounce, that was slightly up as well on the pre-prior quarter, reflecting the ounces as much as anything.

The average sale price was $1,963, so that was up a little bit on the prior quarter, about $27 an ounce, giving us a cash margin of $940 per ounce, which converted to notional cash flow of $122 million from the operations. And leaving us at the end of the quarter with a net cash and bullion balance of $642 million, so that was up about 8% on the previous close of the period. And we’ll talk about that in a moment.

So Purchase is firmly on track to, with what we’re doing, to continue to fund growth and to continue to return capital to shareholders. Now, if we look at what that means in terms of half year, which is how we guide, and the calendar year, it’s similarly very strong. I mean, on the calendar year, 23,528,486 ounces in the upper half of the guidance range, $984 per ounce, all insight cost, and that was below the guidance range.

Now, we were selling it for about $199, the gold $199 an ounce, more than we did in the prior year, and cash flows were very strong, notional cash flows were strong. In fact, $492 million notional cash flow in calendar ’23, delivering that cash balance that I mentioned earlier on.

I’ve got on the screen there now a chart that has been tracking our performance in previous quarters, and you can see that quite clearly, all three mines are performing very well and are achieving or exceeding production guidance and in line with all insight cost guidance as well.

Now, while this has been going on, the production and the cost have been quite consistent now over a long period of time, period-on-period, but what has occurred, of course, is that the gold price has been rising during this period, which has led to a steadily growing cash margin, which has been the thing that has driven net cash balance that I referred to earlier.

And if you look at how we’ve performed relative to our guidance over a similar period, we’re well matched to the guidance that we’ve given, certainly in terms of production, in terms of cost, we’ve actually been running below the guidance range in the last three half years, and I’ll talk to that in just a moment, but certainly we’re keeping a lid on things. Now, the only times that we’ve missed the guidance ranges was in the first six months of COVID, and I don’t think too many people would hold us to account too much on that.

If you look at the individual operations, Yaouré, as I say, it’s been going reasonably well. It’s down a little bit this quarter. I mean, it’s still producing 47% of our total production. The slight dip in production was driven by grade relative to the prior period. The production cost at $794 an ounce and an All-in-Site Cost, $960 was up on the previous quarter, but we did flag last quarter that we were going to be increasing the total material moved to make up for lost production during the quarter when we had very heavy rain, and that did occur and will continue to occur going forward. So in the next six months or so, we are going to see further increases in the all-in-site costs as we bring to account accelerated mining rates.

Now, Perseus, when we report All-in-Site Cost, it’s a little bit different to how other people do it, but included in that number is all of the costs that we incur. So a lot of people capitalize stripping costs and things like that. We don’t. We report it in the All-in-Site Costs. So in fact, it isn’t anything to be overly concerned about. We will be back on-track fairly shortly, and things will settle down from there.

But as you can see from that guidance slide earlier on, there were a few periods where we were moving less material than we’d planned as a result of weather and other things, but we have set up a plan in place to get back on-track, and there will be some costs associated with that additional work.

Notwithstanding that, things are tracking pretty well. We’re getting very good reconciliation against the block model. So it’s about negative 1% on contained ounces across the block model for the last three months or so, and that’s fairly tidy. We also released during the quarter an updated technical report for Yaouré, which gave an updated life of mine plan, and it also demonstrated the technical and economic viability of putting an underground mine down off the CMA pit, which is something that we will be doing in years to come, and that will extend the mine life for about another 12 years or so from now. So that’s a fairly important piece of work that was done during the quarter.

At Edikan, as I said earlier, it’s been going along very well during the quarter. 50,000-odd ounces produced, about 39%, 40% of our overall production. It’s actually been a very solid result. I mean, run time of 95% grade of about 1.1 gram, recovery 92%. Those are metrics that are not normally associated with African operations, I have to say, but at Edikan they’re running exceptionally well, and an All-on-Site Cost of $930 an ounce is a very, very creditable result in global terms. The cash margin from Edikan, a bit over $1,000 an ounce, notional cash flow around $51 million.

So it’s actually really working very well and I guess it’s validating the change in strategy that we implemented a few years ago with Edikan of pursuing cash flow rather than pursuing production. So rather than producing low-margin ounces, we elected to produce high-margin ounces. It did knock our production down a bit, but certainly has benefited the bottom line.

As at Yaouré, reconciliation is pretty good, we’re about plus 5% on contained ounces there. So that’s encouraging. And we will be looking to open up a new mining area in coming periods. This is the Nkosuo mining area, which is just to the north of the project. And with the mining lease license was approved by the Minerals Commission during the quarter and so we’re looking forward to getting started on that mining operation later in this year.

Now Sissingué, I said at the outset, Sissingué had bounced back from a very dismal September quarter where we had quite serious rainfall, and it’s done very well. I mean, production’s up about 70% quarter-on-quarter. The metrics of the operation are pretty solid, they’re about 94% runtime, your recovery’s 91% or so. So, very good, very good performance.

The costs are down quite a lot from the previous quarter, I think it was a bit over $2,000 an ounce in September, and it’s down at about $1,500 an ounce at the moment. So that’s quite a drop, and it will continue to drop in coming periods as our production steadily increases at Sissingué. The cash margin was $520 an ounce, $521 an ounce, and we made about $10 million a quarter.

So, fairly handy little cash generator, very tidy operation and contributing well to the bottom-line there. Once again, reconciliation’s been good, I think it was plus 7% on ounces, so that’s encouraging. The ESIA, the Environmental and Social Impact Statement that we needed to prepare for the Bagoé mining operation, you might recall we acquired the Bagoé operation a couple of years ago.

That feasibility study was approved, and the mining license has gone through the Inter-Ministerial Committee and is waiting, signature by the President, so we should get that fairly shortly. So, the three operations have done pretty well. Now, looking forward, the guidance that we’re giving to the market is down a little on the production in the December half-year, and that does reflect what I was saying earlier about the impact of doing the catch-up mining at Yaouré, but it’s still fairly strong in relative terms.

So, and I should say, at this point, I mean, we’re 20-odd days, 21 days or so into the first month of the quarter, and I think we’re running at around 12% above our budget. So, it may turn out that our forecasts are a little conservative, but we’ll see how things pan out as time moves on.

Now, in terms of the financial position, I’ll pass to Lee-Anne to speak to this slide, if you wouldn’t mind, Lee-Anne.

Lee-Anne de Bruin

Thanks, Jeff. Hi, everyone. So, as you can see, this quarter, we’ve ended the 31 December with a cash balance of $642 million. We emphasize the point that we still have zero direct and an under-drawn credit line of $300 million. Our net increase in cash was about $48 million. That included a good performance, as Jeff just pointed out, in the operating area, giving us operating cash flow margin of $131 million.

But we’ve also started to focus, as you’d all be aware, on our capital allocation, and so that included equity investments of $40 million in the period, and a return to shareholders of, our per se shareholders, of $22 million. I’ll sort of point out further that we’ve also contributed to the government through tax payments in Ghana for about $14 million, and continue to deploy cash back to our 10% shareholders in-country through shareholder dividends.

And then moving on to our hedge book, I think it’s important just to emphasize our hedge book, which we focus on to ensure we’ve got some long-term certainty in our cash flows. We ended the quarter with a small increase in ounces, about 352,000 ounces, hedged out at an average $2,062, which was a $32 increase on the quarter-on-quarter rate per ounce.

Jeff Quartermaine

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

Lee-Anne de Bruin

Thanks, Jeff.

Jeff Quartermaine

Good. Thank you, Lee-Anne. And just looking at some other aspects of the business. So in terms of the sustainability side, this is a very important part of all the business that we do. Looking at safety statistics, safety across the group has been pretty healthy. We’ve been gradually bringing our total recordable injury frequency rate down, our triple down from 1.07 to 0.89.

So that’s good. We are investing quite a bit of money in the safety space, I might add. So it’s nice to see that we’re getting actually some bang for buck on that. And what is actually even more pleasing is that in reality, people are very much embracing the concept of safety, which is something that is not normally the case across African communities.

So we are pleased that we’re making inroads in that space. Speaking of the communities, we’ve continued to make fairly strong economic contributions to our host countries. It was around $150 odd million to $145 million during the quarter across the three governments.

And that obviously makes a difference. Our employment levels were about 95% of our workforce is local people. So a fairly limited number of expatriates.

So we’re contributing to employment in these countries. And we are looking at our gender balance and recognizing the cultural differences between, say, Australia and some African countries, 13% is female, which is steadily moving upwards. And happy to report nothing of any note in either the community events or anything in terms of any environmental issues over the period.

So that’s all quite pleasing. In terms of our organic growth, I did mention earlier on the updated technical report that we produced for Yaouré, giving the updated life of mine plan and also the feasibility level study on the underground mine. It will extend their mine life at Yaouré for at least another 12 years.

And I would be surprised if it doesn’t go well beyond that, I have to say. And certainly, it’s increased the reserves. So we’ve got about 2 million ounces in front of us from this point forward, even though we’ve already had three or four years of very good production from the Yaouré mine.

So that was an important piece of work that was done during the quarter. We continue to look at our exploration activities quite a lot. I mean, in terms of Sudan, I should mention Sudan because clearly that has been a bit of a setback for us.

We do have staff on site and we are looking at restarting the exploration. I’ll come to that in a bit more detail in a minute. But certainly in Côte d’Ivoire, we’ve been focusing pretty heavily on the Yaouré tenements particularly, and made some pretty interesting discoveries actually on that CMA structure.

And also to the north, there’s another prospect there. So we’ll be bringing out results in due course of that. But certainly, the results that we’re seeing from around the Yaouré mine is giving us a lot of confidence that extending the mine life beyond where we currently are, beyond that 12 years is something that is reasonably in prospect, I would think.

And similarly, the exploration up around Fimbiasso mine has generated some very interesting results as well. And we’ll be speaking about that in more detail as this quarter goes along, I’m sure. In Ghana, we’ve been doing quite a lot of work on the licenses that we acquired last year, adjacent to the existing licenses for Edikan, with the aim of extending the life of that mine from its current five years to a 10-year operation.

That’s our target to double the life there. Now, it’s early days on some of this exploration. The Nkosuo deposit was the first discovery we made up there.

But we believe that there are prospects on that land that certainly warrant very close examination. And we’ll also be very surprised if in the fullness of time, we’re not talking about additional deposits up in that particular area. I mentioned Meyas Sand, and just to focus on that a little bit more, because, excuse me, we were holding very high hopes for the development of the Meyas Sand Gold Project.

It’s located in the far north of Sudan, near the border with Egypt. It’s a fully permitted project. So it’s ready to move into development pretty much as soon as we had done the work that we were working on.

Unfortunately, armed conflict broke out in the country in April last year. And there is still conflict occurring in parts of the country. I might say well away from where we are located.

The military situation around our area is very stable, which is important to us, because clearly the safety of our staff and our contractors people is our top priority. And we wouldn’t be putting people at risk. But nevertheless, the situation is stable.

We do have people on site at the present time who are busy working on re-establishing services and logistics to support the recommencement of exploration activities. And we believe that we will be able to get away on that work, to start work on that in the June quarter this year. And we’ll continue to drill out the Meyas Sand Gold Project for as long as we need to before we move into development on that one.

We do believe the geological potential is extremely large in that area. And we do expect to be able to not only convert the resource reserve from the CIM to JORC reserves, I’d like us to do that before too much longer, but we believe we’ll be able to expand that as well. And that will significantly add to our mineral inventory as a company.

Now, turning to organic growth, and this is one that I guess was in the newspapers yesterday. Look, as a company, we’ve looked at both organic growth and inorganic growth, means to continually upgrade the size and quality and geographic distribution of the portfolio. So that’s meant maintaining a watching brief right across the continent and identifying opportunities, both in pre-development and production, that when the opportunity arises to move to add them to the portfolio.

So what we did in November, as people are aware, we did take a 19.9% stake in the issued capital of OreCorp, which as you know, is an ASX listed company with an important asset in Tanzania. And on the 22nd of January, so just on Monday, we announced our intention to make an off market takeover offer for all of the shares in OreCorp that we don’t already own.

Now, the consideration for that purchase is $0.55 Australian in cash per share. And we believe that that is a very fair and attractive offer. The bidder’s statement — our bidder’s statement is expected to be lodged with ASIC and provided to OreCorp and released to the market prior to the end of this month. Within a week or so of today, that will be in the public domain, and that will outline precisely what we are offering to the OreCorp shareholders.

When we made the offer, it was at a slight premium to a competing offer that’s been made for OreCorp that was made on the 27th of December and amended on the 16th. Certainly, the price that we are offering is slightly above — or was slightly above the Silvercorp offer. It changes day to day as exchange rates, silver prices and Silvercorp shares move up and down.

But that was the situation when the offer was made. All of the conditions on the offer that we have made are materially the same as those that Silvercorp have made, including the condition of the offer being we need to get 50.1% of the shares in order for that to go through. Now, the thing that is important here, I guess, and is worth noting is that Perseus’ offer, unlike Silvercorp’s offer, provides OreCorp shareholders with the certainty of receiving a cash payment that’s equal to 100% of the stated value of consideration.

Now, the Silvercorp offer is comprised of a significant percentage of their shares. And as I said, depending on what’s happening in the silver market, what’s happening in the North American equity markets, what’s happening in the exchange rate, both Canadian and U.S. dollar to the Aussie dollars, their value moves up and down. So the shareholders of OreCorp have a fairly simple and stark choice.

Do you take $0.55 cash or do you take a punt on a whole series of variables over which you’ve got no control? On the back of that, we think that our offer is a superior offer and we would expect that in the fullness of time, OreCorp shareholders will come to the same conclusion. So that pretty much brings to an end presentation.

Look, as I said at the start of the call, we’ve had another good quarter on all fronts, including gold production, costs, cash flow generation, and very pleasingly, the work’s being conducted in a safe and sustainable manner in line with the targets that we’ve set ourselves. In terms of production guidance and cost guidance, once again, we’ve delivered on what we said we’re going to do. In fact, we’ve actually done better than that.

And looking forward, the guidance for the next six months, while it’s down a little relative to recent performance, is still very strong relative to many of our peers. And the slight downturn is temporary. And I’m very confident that it will not be very long before Yaouré in particular is back on track.

Our financial fortunes have been very strong, clearly helped by the buoyant gold prices. But I have to say that our treasury team has done an outstanding job to capture the benefit of this rising price. And at the same time, put in place a floor such that if the gold price does pull back, then Perseus will be in a much stronger position than many of its peers.

Our cash balance continues to grow. And notwithstanding the fact that we have used cash to make that investment in OreCorp that I mentioned earlier, we’ve got $642 million. Now, that’s U.S. dollars, not Australian dollars in the bank. And we have no debt.

Now, I don’t think too many of our foundation investors back in 2004 when the company was floated would ever have expected that Perseus would be in that position. But that is the position we find ourselves today.

Now, what we plan to do with the silver [ph] growing cash balance is something that does exercise the mind of a lot of investors and commentators. And let me assure you that we do intend to continue to grow our company and incrementally improve the quality of our asset portfolio when opportunities do arise. And when they do arise, we won’t hesitate to deploy capital accordingly in a way that’s beneficial to shareholders.

Now, in the immediate future, we do plan to continue with our existing capital management strategy by declaring a base dividend supplemented by a bonus dividend or potential share buyback or capital return, depending on how much excess cash is available at the time. And I point out that we will be reporting our half-year financial results in February on the 23rd of February, at which time you’ll hear more on the subject of dividends.

So finally, in conclusion, I do want to acknowledge the contribution made to the success of Perseus over many years, but in particular, in the last quarter by all of the men and women in four countries that make up the Perseus Board, management and operating teams.

And Lee-Anne [ph], you continue to do an outstanding job. And I sincerely thank you all on behalf of the Board of Directors and shareholders for your efforts in helping us to continue to deliver on our promises. So, listeners, thanks very much for your attention today.

This brings my presentation to a close. And now, Lee-Anne and I are happy to field whatever questions you may have.

Question-and-Answer Session

Nathan Ryan

Thank you, Jeff. Just repeating, if you would like to ask a question directly to the company, please use the raise hand function within Zoom. Now, I’ve received a lot of questions regarding Monday’s announcement about OreCorp. We’ve summarized into these questions, which we’ll let you address now, Jeff.

So the first one, is this your best and final offer for OreCorp or could you pay more?

Jeff Quartermaine

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

Nathan Ryan

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

Jeff Quartermaine

Look, we’ve communicated the merits of this proposal, as we set out in our intention to bid statement to numerous OreCorp shareholders. In fact, prior to us making any investment in this, we were approached by quite a large number of OreCorp shareholders, suggesting that we really should consider investing in this situation. We had already been considering it ourselves for some time, but it was interesting that there are a lot of shareholders out there who were very keen to see an offer from us.

And the feedback to date has been quite positive, I have to say. Generally stating the view that in their mind, the purchase offer is superior to the Silvercorp offer. Now, in respect to specific shareholders and their intentions, the two gentlemen that you mentioned are intelligent and wise investors, and they will make up their own mind in the fullness of time. But as I say, they’re canny investors. They know what value looks like, and I’m sure that in time they will see that this is a superior offer and appreciate the attractive nature of it.

Nathan Ryan

Thank you. Have you spoken to Silvercorp since the announcement of your offer?

Jeff Quartermaine

Well, look, Silvercorp is the second largest shareholder of OreCorp at the moment, of course, and we are always open to discussing matters with shareholders. And I guess, we have put forward our offer and if Silvercorp would like to discuss that with us, then we’re always open to speaking to them. But I would expect that they, like the other OreCorp shareholders, see how attractive it is and will probably talk to us in the fullness of time.

Nathan Ryan

Do you think you are paying too much, too high a price as you are paying nearly one times net asset value for OreCorp?

Jeff Quartermaine

Well, look, that’s net asset value as presented, I guess, by OreCorp. I’m not sure where that comes from. But as I said earlier on, we’re paying a full and fair price for this.

We have done significant levels of due diligence on the asset and on the country. And, you know, it’s fairly clear to us that the price that we’re offering is a fair and reasonable price and at the same time can generate the sorts of returns that Perseus needs to justify making investments. As people know, Perseus is fairly disciplined financially.

And I guess the balance sheet reflects that discipline over a period of time. But look, everybody has to do their own due diligence on these things and form their own views. But we think we’re very comfortable with the price that’s been offered.

Nathan Ryan

Thank you. Is there a risk with regard to FCC approval and the timeline that it will take to gain these approvals?

Jeff Quartermaine

No, look, I don’t think so. As I said, we’ve done significant due diligence in country. And in fact, we had, I think OreCorp announced on our behalf the other day that we had a due diligence team in country a week or so ago.

And we had very, very constructive discussions with the Tanzanian government about the way things work in the country and particularly the approvals that are needed. And we are very, very confident that that approval will come through in very short order. So I don’t think anyone should be concerned on that particular front.

It’s clearly in the benefit, in the country’s interest to have a company like Perseus as the steward of that asset. Because Perseus is in the position where not only do we have cash on balance sheet, we’re not reliant on capital markets to fund, so we can move promptly. But we’ve also got a development team that’s standing by ready to move.

Now that development team would have been working in Sudan had the war not occurred. And is ready to move from the various jobs that they’re currently holding down within our operations to Tanzania should we be successful in this acquisition. So I think the Tanzanian government is very, very keen to see this project developed.

And with that in mind, I don’t believe there’ll be any problems whatsoever in us receiving their full support going forward.

Nathan Ryan

Thank you. And the last one. What will you do with your shareholding in OreCorp if you’re not successful in obtaining at least 50.1% of the company?

Well, look, we’re very confident that we will.

Jeff Quartermaine

So I think I don’t want to spend any time on that particular hypothetical. You know, we’ve set out a very decent offer here. And I’m extremely confident that after, shareholders have had the opportunity to digest what the offers on the table are.

One is a $0.55 cash offer. The other is an offer that the value of it varies depending on a series of variables, which are not under their control. I think as soon as people have had time to digest that, they will come to the view that clearly our offer is superior.

And so on that basis, I don’t think that we really need to be concerning ourselves at this particular point about with the question that you’ve asked.

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

All right. Well, look, I mean, all those questions related to the OreCorp transaction. And in a way, it does overshadow what has been a terrific quarter once again for us.

And, you know, the fact that the company is producing on target, is generating lots of cash, does put us into the position where we have to be what considered as, you know, one of the leading performers in the sector. And we believe that we’ll continue that into the future. And we’ll look forward very much to talking to you again in another three or four months’ time about a similarly strong result.

So thank you very much for attending today’s webinar and look forward to reengaging in the future.