2023-07-26 09:36:05 ET
Perseus Mining Limited (PMNXF)
Q4 2023 Results Conference Call
July 25, 2023 07:00 PM ET
Company Participants
Nathan Ryan - Investor Relations
Jeff Quartermaine - Managing Director & Chief Executive Officer
Lee-Anne de Bruin - Chief Financial Officer
Conference Call Participants
Reg Spencer - Canaccord
Andrew Bowler - Macquarie
Alex Park - Citi
Presentation
Nathan Ryan
[Operator Instructions]. I will now hand over to Perseus Mining CEO and Managing Director, Jeff Quartermaine. Thank you, Jeff.
Jeff Quartermaine
Thanks, Nathan. And welcome, everybody, to Perseus Mining's webinar to discuss our June 2023 quarter report. Now as in the past, I'm joined on this call tonight by our CFO, Lee-Anne de Bruin; who, along with myself, will be available to answer specific questions you may have later in the call. Both Lee-Anne and I are joining you this evening from our Yaoure Gold Mine here in Cote d'Ivoire, where we are currently undertaking a regular quarterly review of operations. Now while the Internet and power supply in Yaoure are usually very reliable.
If we do go missing part way through the seminar, it will be due to telecommunications problems. So I apologize in advance. But hopefully, that won't be necessary. What I intend to do today is, firstly, to provide an overview of what Perseus has achieved operationally during the various periods ending 30 June '23 and then open the floor to a Q&A session. I'll keep the presentation as brief as possible as all the details that you need to understand what Perseus has achieved during the quarter are fully documented in the market release that was published earlier today.
But let me just highlight a few key points and then we'll discuss it in detail, if you wish. Now for those of you who are now listening to the call on your computer, you will be able to track my comments visually through your screens with the presentation. Before I start, though, I say what a pleasure it is to be able to report that in line with the trend that Perseus has been following for some time, our team has delivered yet another very strong performance this quarter and, in fact, half and full financial year, not only in terms of gold production and cost performances you'll see in a moment, but right across the company, our team has been delivering at the highest levels.
And even in Sudan, where our resilience and adaptability have been seriously put to the test this quarter. Not all of our peers are in a position that we find ourselves today. And to be frank, going back 10 years, neither we. But we have persevered, and we have done the hard yards, and we have delivered all that we promised. And it is gratifying that all of our stakeholders are now receiving the benefits of this work in line with our corporate mission.
So without further ado, let's turn to the scoreboard and see what I'm talking about. So firstly, a few cautionary statements as you're all familiar with, and we'll have a look at our operating results. So as you can see, we have had a very strong quarter. Gold production for the quarter was 136,634 ounces. And that was comprised by -- about 53% came from Yaoure, 37% from Edikan, and about 10% from our Sissingue mine.
That is about 5% more than the previous quarter, where we did 130-odd ounces. The all-in site cost was $1,007 per ounce, just on the $1,000 mark. That was slightly higher than the March figure of $971 per ounce. The average gold sale price was $1,933 per ounce, and that was 6% better than the selling price in the March quarter. And this resulted in a cash margin of USD 926 for every ounce of gold that we produced, and that was 9% more than we did -- we achieved in September.
All in all, that then resulted in a notional cash flow from operations for the quarter of USD 127 million, which was 14% higher than the amount achieved in the comparative figure through the end of March. And I am pleased to say that, that very strong operating performance has continued so far in the September quarter for this month, which is pleasing indeed.
What it does is it underlines, as I said, the trend that's been in place for quite some time, in fact, barring COVID, the first 6 months of COVID. For the last 9.5 years or 10.5 years, we've either achieved budget or exceeded budget. And this quarter has been no exception. Oops. Sorry -- if we look at the specific performance, both in the half year and full financial year relative to guidance, you can see that we've outstripped guidance production-wise at Yaoure and Edikan.
Sissingue was in the range. And in terms of costs, we're coming under the bottom end of the range, both at Yaoure and Edikan and indeed, at Sissingue as well. That's both in terms of the half year and the full financial year. And looking at the half year of 266,909 at $989 an ounce that led to a full year performance of 535,281 ounces at USD 959 per ounce, and that compared very favorably to the performance in the previous financial year. In fact, it was about 8% up on the fiscal '22 production level.
And costs were recently flat actually at $959 million. That was very similar to what we achieved in the last year, which is a pretty reasonable effort, given the inflationary forces that we're confronting and also given the fact that due to the higher gold price that we sold our gold at, the amount of royalty that we were paying per ounce to the -- our host governments, it also increased as well. So higher gold prices are good, but they do lift up the cost as well.
Now looking to the future. For the next 6 months, we're predicting that we -- across the board, we will be producing 242,500 to 272,500 ounces at about $1,080 to $1,190 per ounce.
That will give us for the calendar year somewhere between 509,000 and 540,000 ounces at a touch over $1,000 an ounce. We are predicting a slight increase in all-in site costs across the board. That is a result of a range of factors, including increased mining at some of the mines as we're stripping pit [walls], et cetera, et cetera, and also some reference to inflationary factors that we are actually seeing.
And looking at that forward projection, I should make the observation that not only we are looking forward to strong production and cost performance, but we do expect that our revenue line will be somewhat underwritten. We do have a hedge book at the present time that covers the next 3 years -- or 24% of the next year -- 3 years of production, which is 355,000 ounces, and the weighted average selling price of that gold is $2,008 an ounce.
So we'll be getting $2,008 an ounce for at least 24% of our production over the next 3 years, which, I'm sure you'd agree, goes to underpin projected revenues, et cetera, et cetera. So that's a fairly healthy position to be in. Speaking of that translation into financial metrics, as I noted, based on a strong gold price of $1,933 margin of $926 an ounce and notional cash flow $127 million for the quarter, that resulted in Perseus finishing the period to 30th of June at USD 522 million in the bank. That's 51% -- or $51 million or 11% up in the March quarter.
Now I should say that $522 million is after we have paid for exploration, after we've paid for development, after we've paid something like $54 million to our bank to repay debt and after paying something like USD 77 million to various house governments for taxes and dividends and after returning USD 24 million to our shareholders in the form of dividends, paying this holding -- paying corporate overheads and adjusting for FX and for working capital.
So what that means is that we have $522 million at the end of the financial year after generating and returning benefits to all of our stakeholders in what we think is fair and equitable proportion. So all of our stakeholders have received a benefit from our effort, and we still have $522 million in the bank and an undrawn corporate debt facility of $300 million, which is available to us to continue to fund the growth of our company and indeed return capital to shareholders in one form or another.
So that's a fairly healthy operating performance for the year, I think in -- for the period up to June. In anybody's language, very pleasingly we've done that. We've achieved all that in a sustainable manner that I think is as good as one can reasonably expect, given the nature of our business.
Safety performance across the group has been reasonably stable. We've had a slight decrease in TRIFR rates. Safety has been a major push in the company over the last year or so. We've rolled out a safety enhancement program that we called the SHED program, Safely Home Every Day. And we've been working very hard at that.
And in fact, that has been a key focus of our visit around the sites over the last few days, in fact, to ensure that, that program is deeply embedded in our workforce. And I'm very pleased to say that it's been widely accepted and it's working very well. In terms of our communities -- our host communities, we've made a fairly significant economic contribution during the quarter to both Ghana and Cote d'Ivoire, something like $158 million has been injected into their economies, and that represents about 77% of our procurement that is done locally. We also employ very heavily from the national workforces. 94% of our employees are local people.
And we're very proud of that statistic, particularly given that we've been able to train and progress people through the ranks over time and have a very good set of workers and managers that will be available for all sorts of work in future. In terms of gender diversity across the group, it was running at about 11% in the June quarter. Now people in Australia or in the West may think that that's a little low. But given the countries in which we operate, I think that, that is a reasonable representation given the cultural differences between, say, Australia, for instance, and Ghana and Cote d'Ivoire.
We've also been able to manage our relationships very strongly, and we've had no issues on the community front at all.
Environmentally, we're working as best we can to reduce greenhouse gas emissions. I think we come down slightly during the quarter and had no issues as far as our tailings dams are concerned. So on the sustainability front, I think we've continued to perform to the standards that we've set ourselves. Organic growth has been a key part of the business going forward because while we produced 500-odd -- 500,000 ounces a year, we need to replace that each year to ensure that we can continue at those levels. So we've been involved in a number of activities.
We've been doing studies on the CMA underground at the Yaoure project. A mineral resource reserve estimate will come out around August on, that. And we'll be putting out an updated Life of Mine plan on both the Yaoure underground and expanded Yaoure open pit.
That should be delivered sometime in September, we expect. So we're looking forward to that, and that should indicate quite a significant extension to the Yaoure mine, which is our primary source of production at the present time.
We have been working fairly hard on exploration right across the group. We've done some good work up at the Meyas Sand project in Sudan. I'll speak of this a little further later on.
We've got some very, very good results coming through from that, which confirm our theories around the quality of that ore body. In Cote d'Ivoire, as I said, we've been drilling around Yaoure pit and also doing some work on the CMA Deeps program.
And also, we've recently undertaken -- or commenced a drilling program up around the Sissingue mine to see if we can add a couple more years of life to the Sissingue operation. So that's going quite well. Over in Ghana, we've got -- we recently picked up some land to the north of our Edikan mine, and we've got a number of very high-quality targets identified up there. And work has gone progressively during the quarter to try and advance those targets to a point where we can start to do some drilling to try and delineate resources and reserves, which will further add to the mine life of the Edikan operation as well, but that's looking quite promising. Now I did mention the Meyas Sand Gold project, which is the project that we have in Northern Sudan just adjacent to the border with Egypt.
Now as people are probably well aware, this quarter an armed conflict broke out between the Sudanese Armed Forces and a powerful militia group. That activity was principally focused around the capital city of Khartoum which is about 1,000 kilometers to the south of the Meyas Sand project as well as in the Darfur and Kordofan regions, both of which are very, very long way away from where we are now. From Perseus' perspective, clearly, this was a very troubling development.
And then the safety of our staff and contractors was at the foremost of our mind all the way through this exercise. So at one point, we did temporarily suspend activity and withdrew our people from the area just to ensure that we weren't caught up in any activity which may occur.
While we were away from the site, some vandalism did occur on the site by artisanal miners from the area, but we've since managed to establish order on the site, and we will most likely commence a drilling program up there as soon as supply lines can be established and we can feel that all of our staff will be secure should we recommence those activities. Given the state of play in the country, though, the final investment decision on the development of the Meyas Sand project, which we were planning to take during the second half of this year, in fact, not too far from now, has, in fact, been postponed until peace and stability have been achieved and that we have confidence that the country is a viable investment destination. Now where we stand today, we don't believe that is the case, and we have no line of sight as to when it actually might be.
But as we say, in the meantime, we'll continue to drill. We'll continue to expand the reserve. That goal has been in the ground for a very long time, and it's not going anywhere, and we'll go back to the country when things are ready to be advanced. So we -- while it has been a setback for our plans to develop our fourth mine, it's not a fatal event for us in any shape or form. It's a setback, but we'll be moving on from here, and I'm sure we'll find other things to do.
Just for people's interest, to date we've invested about $25 million in ore, preparing for that investment decision, including drilling and infrastructure and various other bits and pieces. And so it's not a massive amount of money in that investment. The value that investment has created it will continue to be available to us when we do switch on the development program at some point in the future. As you can see from the photograph, the site around the Meyas Sand project is pretty distillate, and there's certainly no drilling and no communities that are likely to erupt in the conflict anytime soon.
Now the other side of our business growth, of course, is the opportunity for inorganic growth, and I'll just briefly touch on this now because this is a subject that many of our investors are very interested in, particularly given the cash balance and financial capacity of the country -- company at the present time and the fact that Sudan has been put back in the schedule and people are wondering what we might do as a replacement for that.
Now we do need to work to keep our production levels around the 500,000 ounce level. We have been working, as I said earlier on, fairly strenuously to do this through organic means, in other words, through exploration and project development, et cetera, et cetera. But also, we acknowledge that growth through inorganic means, also represents a viable way for us to expand our reserve inventory and potentially even expand our production profile going forward. The fact is that we do have significant financial and human capacity to involve ourselves in inorganic growth. However, the fact is that opportunities to deliver the economic returns that we targeted to get the right balance of risk and return in our portfolio are fairly limited.
And so we do need to maintain a very active watching grid than we do on all sorts of opportunities, and we do need to carefully evaluate those sorts of opportunities. And when we see something that works for us, then not only are we motivated to act, but we also have the means to do it as well. So we are working in this area, and we'll bring news of any development in this area to you as soon as it comes to hand. So that's fairly much the state of Perseus. But let me just say, look, as I said at the start of the call, Perseus has had a very good year, both quarter, half year and financial year on all fronts, and we've done in the production area, cost area, cash generation, business development.
And pleasingly, as I said earlier on, we've achieved this in a safe and sustainable manner in line with the targeted standards. We have comfortably beaten our gold production and cost guidance given to the market both on the half year and the full year. And in doing that, we have outperformed a lot of our peer group. Our all-in site costs are very competitive on a global scale. And pleasingly, we are managing our business quite successfully in tough economic times.
The all-in site costs have fractionally gone up year-on-year. But I think if you can hold your costs flat in the sort of inflationary environment that we're seeing, then you're obviously doing something right, and we believe that we are. As I said, we have experienced a setback in Sudan this quarter. But honestly, it will take a lot more than this to knock us off our stride. We have the human -- as I said, human and financial means to continue to grow the business and to successfully unlock value, as we demonstrated several times in the past, and as I'm sure we'll demonstrate again in the not-too-distant future.
Just before I draw this to a close and call for questions, I do want to acknowledge the contribution that has been made to the success of Perseus over the last 12 months by all the men and women in 4 countries that make up the Perseus team. They've done an outstanding job this year, and I should also mention not only in Africa, but in Perth. And before we left on this current round of business, we were able to thank these people personally, both on our own behalf and on behalf of all the shareholders, many of whom are on the call today, for the great efforts that they have made in helping us to continue to deliver on our promises, which is a core value of this company. So thanks very much for your attention today. This brings the formal presentation to a close, and Lee-Anne and I are now both happy to take any questions that you might have.
Nathan Ryan
Thank you, Jeff. Your first question comes from Reg Spencer at Canaccord.
Question-and-Answer Session
Q - Reg Spencer
Just a quick question, and apologies if you did cover this, I was trying to batch away another call. But -- with the Sudan situation, it is what it is. You've got a growing balance sheet, cash pile, you've got access to liquidity. And we know that you are continuing your business development and your inorganic growth assessment or opportunity assessment throughout Africa. What happens in -- if you do find another asset and then Sudan comes back?
I'm just trying to get an idea of your capital allocation or given the outlook for the business over the next couple of years. Do you feel comfortable that should the situation in Sudan improve, and should you find another asset to look to develop that you'll have plenty of liquidity just to be able to do both of those?
Jeff Quartermaine
No, I think very confident that, that would be the case. Look, I think that it will take several years before we have confidence to invest the money that's required to develop Sudan. So I'm not at all concerned about having a logjam. I mean the fact of the matter is that we do have $800 million in debt and undrawn debt and equity out of disposal. And based on the cash flow of last year, we're generating a lot of cash at the present time and expect to be able to continue to do that into the future.
So I think -- don't think that funding is going to be the challenge for us in terms of growth. I think, if anything, the bigger challenge is going to be finding the right opportunities.
Reg Spencer
That was actually going to be my next question. You guys have shown yourselves to be quite astute today. How do you see the M&A environment or should I just say that you see lots of good opportunities throughout your targeted jurisdictions at the moment? Or is quality -- do you see quality being an issue for a company that's willing and able to grow?
Jeff Quartermaine
Yes, it is an issue. I mean the thing is this that there's a very large difference between the task of promoting the project, which is what company -- some companies do and the task of converting resources into money, which is what we do. There's a very big gap between that. So what may appear to a casual observer is a very attractive, small predevelopment project or the like. When you actually lift the hood and look carefully at the situation, it's not always what it is represented to be.
And that means that the opportunities are fairly limited, and there's a lot of competition for these superior situations as well. So what it means is that we have to look continuously. We have to look -- be very diligent in the way we go about our search. And as I said before, I've got every confidence that one of these states will come up with something that will create the sort of value that we've been creating in the past.
Reg Spencer
And in the meantime, keep doing what you're doing good. Good quarter, congrats to both you and the team.
Jeff Quartermaine
Thank you. Are there any further questions?
Nathan Ryan
Sorry, your next question comes from Andrew Bowler at Macquarie.
Andrew Bowler
Jeff, I think you properly covered my inorganic growth question. Just on your guidance for the first half of FY '24, I mean, obviously, you had a pretty stellar performance compared to both half guidances in FY '23. Just looking at the numbers, relatively flat production performance, but expecting all-in sustaining cost to tick up a little bit more than what that production performance is expected to reduce. But can you just talk through how you got those numbers and what sort of assumptions that are baked into those sustaining cost numbers for that first half guidance, please?
Jeff Quartermaine
Look, I have spent a good day talking to you about that if you want all the granular detail because, basically, we look at it with our budgets for the year and then we work around those budgets. But clearly, what we do when we budget, we do bottom-up assessments of the future, taking into account all of the mining activities, et cetera, et cetera. And as I say, on some of the operations where we are doing more cut back than others or in the case of, say, Sissingue, where we'll be working during the course of the year to open up the Bagoe deposits, which is another satellite deposit, and that does involve some additional expenditure. They are the things that contribute to the slight uptick in cost. The other thing is that our mining contractors, we use mining contractors at each of our sites, they all have rise and fall clauses in their contracts.
Now as people know about contracting, rise and fall clauses don't necessarily match reported inflation rates. Sometimes they go higher, sometimes they go lower, and so we've had to make some predictions around those impacts. So things like a combination of tires, fuel, spare parts, labor, et cetera, et cetera. All of those things are factored into the equation. So it's a fairly well-considered set of numbers.
You could say they're conservative, and you could say that on the basis that for the last few years, we've been outperforming all of our guidance. But this is the guidance that we're giving, and if people rely on these numbers, I've got every confidence that we'll deliver them or exceed them.
Andrew Bowler
Nice. All right. And just from [Lee-Anne] probably, obviously, over [$66-odd million] I think, if I zoom in on your release, [$64 million] maybe in tax paid during the quarter, I mean that's obviously a pretty chunky amount compared to recent previous periods. Can you just give us an indication of the sort of lumpiness over the next year or 2? Or is it expected to normalize over the next year?
Lee-Anne de Bruin
Sorry. Carry on, Jeff.
Jeff Quartermaine
No. You go, Lee-Anne. Sorry.
Lee-Anne de Bruin
Yes. I mean, I think the tax paid this year is reflective of the results in that Edikan had a great performance, and so the bulk of that has been tax paid from Edikan. So really if Edikan continues to perform, it will continue to pay tax. And there is also an element there of withholding tax paid on dividends being declared out of our Ivorian subsidiaries where they've now repaid all their intercompany loans. So any repatriation of funds is done via dividend declarations. So it's not going to be lumpy, but it will be linked to the profitability of the operations.
Jeff Quartermaine
I think the other thing we should add to that, Lee-Anne, is that Sissingue is now in a tax-paying mode. And it won't be too much longer, I suspect before we had a 5-year tax holiday on Yaoure. But it may be that taxation -- that should kick in before too much longer as well. So I can't see the tax contribution going down a whole lot from here if we continue to produce at similar quantities and sell at similar prices.
Nathan Ryan
Your next question comes from Alex Park at Citi.
Alex Park
So on the high plant costs for the December half, can you give a bit more color on the inflationary factors you're experiencing. Is this primarily in labor or energy based?
Jeff Quartermaine
No. Look, I mean the labor increases are fairly standard actually. I think we just settled with the Ghanaian mine workers Union last fall. I think it was for something like a 6% increase. So it's not outrageously high, and that's probably fairly indicative across the board.
So that's that. I mean fuel have -- fuel isn't booming, seems to be reasonably stable. And we look at the sorts of factors, I guess. Spare part rate costs, things like that, they do go up and down. And as I said, our mining contractors who also factor in parts, labor, tires, et cetera, et cetera, they all see increase depending on where they're sourcing their material from.
One of the things that did go up during the year was explosives. The crisis in Ukraine and Russia and the like did put some pressure on the market for explosives. And we did see quite a jump at one stage of the game, although I think they're sort of starting to normalize now as people work around that situation. But look right across the board, you see little pieces here and there. And not to mention, of course, fiscal creep as well.
I mean, I think in Ghana, over the last, I think, there's a 1% or 2% increase, Lee-Anne, has been introduced recently across the board in Ghana. So what we do as a business is we try to backfill on those known increases, so try and implement continuous improvement programs to bring down our cost base. And invariably, what we're finding is that as we achieve savings, they get filled up by inflationary forces, and that does have something at least related to the fact that the costs are not going down proportionally to the increase in production.
Alex Park
Yes. That's clear. Good color. And just back on M&A. So you've previously said that there's a focus on predevelopment stage projects in Africa.
How is your thinking around country risk changed following the conflict incident?
Jeff Quartermaine
Well, I mean our view of Sudan has changed clearly, but it isn't ready for investment this year, but we think it will be ready for investment in the future. We haven't changed our view that it is a relatively high-risk jurisdiction compared to perhaps Cote d'Ivoire, where we are operating -- most of our operations are at the present time.
Okay. Our view around the risk side of things is that all of these countries go through political cycles which means that they sort of get -- have problems at various stages and they're fine at other stages. Now if you look at Cote d'Ivoire, for instance, we've been blessed by having production in a time where the political cycle has worked in our favor, and the gold price cycle has worked in our favor. That's been a double win for us. There are other countries on the commodity -- on the continent that you frankly wouldn't go to at the present time or at least we wouldn't.
And -- but they may well come good in years to come. And there are also other countries that have had a fairly disastrous, recent history for one reason or another that we think are starting to improve. So you need to be fairly vigilant and look at these things. But the other thing is, too, by having trying to target projects that have a mine life that will span these cycles is also very important. I mean if you have a short life project that gets a down political cycle and a down commodity cycle, you're going to struggle.
But if you can span those cycles, then you have a chance to make -- at least getting your capital back, if not making very, very good returns, even if things go pear shaped.
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. Thanks, Nathan. Well, look, as I said, thanks very much for joining us on the call today. It has been a very good quarter, and it's been very pleasing to be able to bring a report of our achievements in the last year or so. And we sincerely hope that we can do this again many, many times into the future. So thanks very much, and look forward to bring in news as we move forward.
Lee-Anne de Bruin
Goodbye.
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Perseus Mining Limited (PMNXF) Q4 2023 Earnings Call Transcript