ASX-listed West African-focused gold producer Perseus Mining has established a business strategy that paves the way towards more than doubling its annual gold production over the next four years, which will see it transition into a mid-tier mining company. “We now need to execute this plan and deliver on our objectives to unlock value from our larger asset portfolio,” MD Jeff Quartermaine tells Laura Cornish.
Perseus Mining’s (Perseus) production journey since its primary asset Edikan started generating gold at the end of 2011 has had its fair share of ‘highs and lows’.
Today, four years later, the company has conquered its operational challenges and is not only set to deliver on its annual production targets moving forward but is also now in a position to start implementing a well thought-out business strategy aimed at more than doubling its annual gold output to around 500 000 oz.
To reach this milestone target, Perseus needs to bed down a number of smaller goals in the next few years, Quartermaine notes, starting by driving productivity improvements at Edikan in order to maximise its business efficiency. With its primary operation delivering to expectation, the company can focus on elevating its status beyond a single mine, single country-focused gold junior. “Changing our position to a multi-country focus company mitigates the associated geopolitical risks that exist in West Africa,” the CEO highlights. This is one of the major driving forces behind Perseus’ growth focus – which will be successfully executed as it unlocks the value of its two new Côte d’Ivoire-based assets Sissingué and Yaouré (which it brought into the portfolio through its acquisition of Amara earlier this year) by bringing them into production quickly and efficiently.
“Importantly, with Edikan operating optimally, we will finance this growth through prudent use of debt and existing cash flows. Of equal importance is the development of ‘excellent’ long-term relationships with both local government and communities in the countries in which we operate as well as our ability to leverage the high level skills and expertise within Perseus – at both operating and board level. In combination with our intellectual property I am certain we can implement these goals seamlessly to enhance our new businesses.”
Quartermaine states that should the company successfully execute all these elements between now and 2020, it will undoubtedly grow its production profile to ±500 000 ozpa while decreasing its all-in-sustaining costs to around $800/oz. “The combination of a higher production profile and lower operating costs will ultimately generate significant shareholder return,” he adds.
Edikan nears successful turnaround
The Ghana-based, 90% owned Edikan operation comprises about six discreet open cast ore bodies which together off er an average grade of about 1.16 g/t.
“It is a large-scale, low grade mining operation which requires optimal operating efficiency and full capacity production at all times. “There is nowhere to hide with this type of ore body.”
And while the mine has had a few challenges to deal with in fiscal 2016 – delays to accessing new high grade pit material on the western tenement area which forced the company to process lower grade stockpile material as well as the need to change its grade control processes which diff er from the eastern pits – both of these challenges have been resolved. Consequently, Perseus is on track to commence mining new high grade areas from the beginning of October.
Having also addressed a few process plant difficulties, Quartermaine says Edikan is performing extremely well at present and is in fact ahead of its target for the upcoming quarter and should subsequently deliver on its production goals as indicated to the market. It is forecast to produce 222 000 ozpa of gold for the next seven and a half years (based on current resources and reserves).
“There is still a large amount of mineralisation in the area, with potential at depth and we are already gathering fundamental data to help target future exploration programmes aimed at extending the life of mine. Most gold mines in Ghana which started as open cast operations have transitioned to underground operations and Edikan’s longer-term future could see it evolve similarly.”
For now, the primary focus is ensuring Edikan generates significant cash flows as Perseus enters the final stages of its investment programme, which includes two scheduled plant shutdown periods in October and December to retrofit certain plant components and in turn improve availability and reduce maintenance costs.
A housing relocation programme is also nearing completion and an independent 19.2 MW diesel-fi red generator power station (if needed to supplement grid power) has been commissioned. The combination of all the company’s efforts will reduce Edikan’s operating costs to an average $865/oz over its lifespan which will deliver significant returns if the gold price remains well above $1 200/oz.
Sissingué sets growth plans in motion
Perseus’ 86% owned Sissingué gold project represents the true start to its growth aspirations. The project has entered fullscale development (as of July), funded from the proceeds of a recent equity offering. The company has also received full credit committee approval of a US$60 million project debt facility by Macquarie Bank and BNP Paribas, the prospective lenders to Sissingué. Final documentation and satisfaction of conditions precedent for the facilities are due for completion in the December 2016 quarter at which time funds should be available for draw down.
Australian engineer Lycopodium has been awarded the EPC contract to build the 75 000 ozpa operation and various contracts with suppliers have already been signed. “The project is moving along smoothly, and has been trouble-free thus far according to plan and budget. It should produce first gold in the December 2017 quarter,” Quartermaine notes.
Although a smaller mine than Edikan – a single ore body at this point in time – Sissingué is a much higher grade deposit – 2.2 g/t. At a ROM production rate of about 1.2 Mtpa, it will produce gold for about five years, based on its current 400 000 oz reserve. “There is however potential to increase its lifespan incrementally over time,” Quartermaine points out. There are a number of deposits within trucking distance of the main pit and plant and Perseus is already exploring the potential to incorporate these pits into the life of mine and ultimately ensure it continues operating beyond five years.
There are five very good reasons why the Sissingué project makes sense, Quartermaine outlines:
1. It has an attractive rate of return at $1 200/oz gold price as a five year, standalone mine – 27% real and ungeared – making the return on funds employed worthwhile.
2. Sissingué is the first stage of Perseus’ growth strategy in Côte d’Ivoire. Risking $100 million in the process to prepare the team to build the third large-scale Yaouré project will ensure a well-built third operation.
3. Sissingué also enhances Perseus’s ability to finance the Yaouré deposit, which will be a cornerstone of the company for years to come. The cash generated from the new mine, in combination with the substantial cash fl ow from Edikan, will help fund the new project and make it easier to raise debt at a corporate level.
4. The project demonstrates to Perseus shareholders that there is steady growth in the business. “Without it, we would be at least another four years from expansion and growth. By developing Sissingué as an interim measure, it shows our ability to plan and execute projects successfully and sees the company transition into a double mine, double country business by late next year. This is very important for our overall strategy to survive to flourish in West Africa and to mitigate geopolitical risk.”
5. If Perseus had opted not to develop the project, after indicating its commitment to do so to the Côte d’Ivoire government, it would have breached the faith and relationship with both government and local communities and could have prevented Yaouré from being developed.
Because the operation is located in the far north of the country, Perseus will invest in the establishment of a diesel-fired power station for secure power and will also have to take extra care managing logistics and transportation to the remote site.
“We are also sitting on an international border with Mali, which could pose a challenge. African borders can be porous so additional investment into security will help alleviate any possible difficulties in this regard, as well as building and maintaining solid relationships with the neighbouring communities.”
Yaouré (Amara Mining acquisition in April 2016)
Quartermaine describes the Amara Mining acquisition, which it acquired in April 2016, as the “perfect fit”. Gaining access to Amara’s Yaouré gold project enhanced the company’s geographical diversification and offered it further exposure to Côté d’Ivoire.
“We were looking for an asset that was going to give us long-term, high quality ounces and Yaouré ticked that box. Amara also had limited access to capital and human resources to unlock the value of the asset. And because Perseus desires to diversify geographically, in addition to access to capital and people, we believed we could unlock value capacity from the project – which is the largest undeveloped resource in the country.”
While the asset itself looks to off er attractive dynamics, Yaouré is well placed in terms of auxillary requirements as well – all strategically important to its viability.
It is located 5 km from a fairly major water supply and a major hydro-electricity power station and switch yard. There is a multi-lane concrete highway linking capital city Yamoussoukro (home to a School of Mines) to the port of Abidjan and the 40 km road down to Yaouré is in good condition as well. It is also a Brownfields project, whose oxide deposits were previously mined, which not only means the local communities are familiar with mining activities but also represent a skilled workforce once the mine is brought back into production.
Looking to the asset itself, Quartermaine indicates that Amara had completed a revised prefeasibility study (PFS) on the project. Since the acquisition Perseus has been reviewing all the work previously done and assessing and identifying what alternatives need to be explored. This fi rst stage of a feasibility study is now complete. The full study requires some additional work which is estimated to be completed around June 2017.
The immediate next step is implementing a 42 000 m drilling programme to defi ne and improve confi dence levels in the mineral resource Amara had estimated. It is due to start imminently and will also include 40 000 m of sterilisation drilling on prospective locations. “With this complete we should have a case for taking the project into development.”
While Quartermaine is reluctant at this stage to specify Yaouré’s project details, he emphasises that it will be a high grade, open cast project (relative to Edikan), with an extensive lifespan. With relatively low costs and relatively high production it will be “a substantial addition to our portfolio”. He does reveal that Amara’s initial plans entailed a 4.5 Mtpa operation, producing nearly 200 000 ozpa for 15 years at around $800/oz. “Our early thoughts are for a smaller, more financeable operation – perhaps between 3 and 3.5 Mtpa. We will also look to increase on Amara’s average 1.7 g/t grade by focusing on mining and processing higher grade material – in excess of 2 g/t. Running low grade deposits like Edikan can be perilous and we believe having a buff er on the grade will enhance the project’s predictability and reliability.”
With a feasibility in place Perseus will still need to fi nalise its mining licence and secure suffi cient fi nancing. However, having recently negotiated a mining convention for Sissingué, which is now the standard process in the country, achieving another for Yaouré should not be a challenge.
The company also anticipates a construction built cost of between US$250 and 300 million. Financing will come from existing cash, future cash fl ows and some debt fi nance; in other words, a conceptual fi nance plan for the project is already in place and just needs to be converted from conceptual into reality.
The company is allowing six to 12 months to arrange licensing and fi nancing, after which it will roll Sissingué’s team into Yaouré execution planning and development. It is likely that construction will start in the fi rst half of 2018 and take about 18 months to complete, taking fi rst gold to the fi rst half of 2019 after which a whole year of production will follow.
“We have the physical assets, human assets, fi nancial capability, social licences and community support, and a strong market for our products. We now just need to successfully execute our plans and deliver on the outcomes which we see in front of us and in doing so will unlock the value from our asset portfolio and provide returns to our shareholders,” Quartermaine concludes. MRA