Perseus Mining Limited

Jeff Quartermaine - MD and CEO

Reg Spencer - Canaccord Genuity Dylan Kelly - CLSA Brendan Fitzpatrick - Morgan Stanley Michael Slifirski - Credit Suisse

Thank you very much. And good morning ladies and gentlemen and welcome to this conference call to discuss Perseus Mining's quarterly report that was released to the market earlier today.

Now, at the end of the last conference call held in April, I noted that June has got off to a reasonable start and said I was looking forward very much to this call to bringing more solid evidence that Perseus have moved on to bigger and better things. And that's exactly what has occurred this quarter.

Perseus has recorded very strong performances in all aspects of our business and indeed has continued our journey on to bigger and better things. By that I mean, that not only our operation at Edikan going very well and generating steady cash flow, but we've also performed very well at our Sissingué development.

Our feasibility study at Yaouré is going very well and grass roots exploration is giving us some [Indiscernible] as well. And in the terms of corporate finance, we're also a very good shape and well-equipped for the journey ahead.

So, it's been a very good quarter for Perseus and hopefully in our quarterly report that we put out today, we have presented further solid evidence to support our case that Perseus has put the past behind us and we're well on the track on delivering material growth in production and cash flow. So, let's take a bit of both closer look at the evidence today.

Well, firstly, gold production at our Edikan operation has been on target for the quarter and also for half year of June 30. We produced 51,563 ounces during the June quarter at all-in site cost of a touch over $1,100 -- $1,112 per ounce.

This is our best quarter since June 2015. It was about 6% better than the March 2017 quarter and about 60% better than the quarter prior to that.

On a half year basis, we produced 100,218 ounces at an all-in site cost of $1,112 ounces again that was 32% better than the December 2016 half year, both in terms of production and cost. And it was a slightly higher than the midpoint of our guidance range, which goes to underline the point that not only has over rate of gold production improved significantly over the last six months but also our capacity to forecast has significantly improved as well and I should say that not only was our production in line with the guidance, but so was our all-in site cost.

The other important point to note is that during the six months to June 30, we generated a positive cash margin averaging about $164 an ounce for every ounce of gold sold over the last six months. Given that we sold 108,850 ounces for the half year; that generated around $18 million in cash, which is a vast improvement on where we've been and it's a good start to where we want to go.

Now, the trend of improving gold production at Edikan, there are three main factors that caused that. So, the first of it is improved head grade of [Indiscernible] thought process.

Now, I mean, this is just simply a case of moving through the pits and mining in sequence, there is no magic around that. And certainly look into the future; we expect to see those grades continue to rise as we excess high grade ore from Fobinso and Esuajah North pit.

So, the mining is tracking pretty much as we expected. We've also had very much improved plant performance.

Now, you'll recall that in the December quarter, we spent a fair bit of time down installing new equipment into our plant at Edikan. We've invested quite a lot of money in that half year period and the benefits of that investment are now starting to show through.

And we eliminated a number of bottlenecks and we put in plant that's much more better suited to purpose. And as a result, the plant is running extremely well and we're getting very good runtimes, et cetera, et cetera.

The other thing, of course, is that during that period, in terms of the plant, we did change up the blend of material that was being processed, so there was less transitional material and more fresh ore and that gave us a bit of a kick in terms of recovery, so that was very helpful as well. The third factor that's been very material in the improvement at Edikan goes to the performance of our operating team on site.

Now our operating team at Edikan is predominantly Ghanaian guys and I can say that they're driving extremely well -- driving very hard to take advantage of the mechanical improvements that we've done and they're very focused on delivering targets. And I think my thanks and congratulations goes to the team over there, they've done a very good job and are continuing to do it.

Now, with respect to our site operating cost, I noted -- do note that while gold production increased by 6%, we also had a slight increase in our cost base during the quarter, a very slight increase. The major factor that contributed to that was that during the quarter, we concluded the wage negotiations with the Ghana Mineworkers Union for the years of 2016 and 2017.

So, what we needed to do this quarter was to pick up the back payment of wage increases back to 1 January 2016. So, in other words, [Indiscernible] payment of wages, it's not the recurring cost, but it was a bit of a one-off.

Nevertheless, it did push up the cost base slightly. Again, our mining costs were pretty steady, they are running -- actually decreased slightly, it was around $2.91 a ton and that was as much as anything, a function of slightly more tons of material being mined.

The processing cost did jump during the quarter to $10.31 from $8.95. That was the result of two things; one was just simply the timing of mill realigns, maintenance cost, and that's something that I mean the guys schedule those realigns and they occur as they occur.

So, we just had, I guess, two during this quarter rather than one, but that's nothing too dramatic. And of course labor costs as well had an impact; labor also affected the site G&A cost during the quarter as well.

On a per ounce basis, just what this means is that the production cost for the quarter and by that I'm talking about ore mining, including waste stripping processing, G&A, but excluding royalty, amounted to $9.74 an ounce compared to $9.57 the preceding quarter and as I've said the cost increase there. There's a slight increase in royalty payments and a fairly significant decrease in sustaining capital during the period.

So, as it turns out, the all-in site cost for the quarter of $1,112 was exactly the same for the March quarter. And obviously, that means that for the half year, that was the same.

So, that puts us pretty much into the middle of the guidance range of just $1,000 to $1,220 an ounce. So, in terms of our operating got mine, we turned the corner late last year and this quarter, we continued very strongly this trend of improvement that we've started in late last year.

We put out our updated life of mine plans early this year and when we did that, a number of people said to us, well, your plan looks very good, but show us your work. Now prove to us that you can achieve the operating trend that's needed to deliver that plan.

Well, to those who made that statement, I'll say this, this is the second quarter in a row that we’ve delivered exactly what we said we would do. This is -- this turnaround is not a [Indiscernible] pay, this is part of a long-term trend, a strong performance followed by some very material changes in the way we do our business.

And there just might be time for those who are a little -- have been a little bit doubtful in the past to start to reassess the situation rather than to dwell on the past. Now moving to development activities and specifically first up, the development of the Sissingué mine.

Construction at Sissingué has moved ahead steadily during the quarter. By the end of the quarter, we were about 61% complete.

Offsite, the engineering is finished and all the procurement of long lead items is done. Onsite, the construction team is making really good progress, both concrete work associated with the plans and installation of underground services is just about done.

And the majority of buildings, including offices and warehouses, are either completed or very close to it. Direction of steel works associated with the crusher and SAG mill is well down the track.

The CIL tanks are being erected and the contract is on-site and starting work on building the SAG mill. In fact, the CIL tanks, I think by the end of this week, I think we should be pretty well done with all seven tanks.

Now, in addition to that, we've also completed the air strip, completed the tailings dam, completed the mine camp. Work on the river intake is done and we're now in the process of finalizing the connection between the water intake from the river and the water storage.

And completion of that work has been bang on time there and very good. I noticed just from a couple of sets of photographs that have come back -- come to us that the river level is starting to rise as a result of the wet season.

So that work has been completed and that will ensure that we've got plenty of water available for us when we start production early next year. Assembly of the generators and power station, control panels is just about completed.

In fact, the first shipments of those have commenced and will be in site later this quarter and we'll be getting those things too. I mean, you picture 10,000 words appendix A of our quarterly report, we have included a selection of photos of the site that have recorded progress and for those of you have any doubts about Sissingué, I suggest you take a look at those photos.

The earthquake, diamond and the steelwork's jumping out of the ground and as you can see from that -- those photos, we're well on target to be producing our first gold in the March quarter next year. To put context to Sissingué further into context, we set about $13 million during the quarter on development activities and that brings us up to about $68 million in total expenditure at Sissingué.

The forecast cost to complete from here is about $48 million and that will be funded to the tune of $40 million from a project debt facility that have with Macquarie Bank and the balance will come from our existing cash reserves. So, what this means is that completion of development at Sissingué is fully funded.

Now, certainly though I can't see how I can be any clearer on that point, I know that some people were wondering about our ability, so I'm going to show you it is fully funded. Speaking of the Sissingué operations, one of the very important lessons that we learned from Edikan was how important it is to be fully tuned up for the start of operations once commissioning is completed.

To this end, our technical services team and our human resource teams have put together some pretty comprehensive operational readiness plans at Sissingué and have been working through those with the objective of ensuring that once commissioning is done, the ramp-up to full scale gold production occurs as efficiently as possible. Work started on that during the quarter and implementing those plans during the quarter.

We're keen to get the key members of the site operating team there as soon as possible and involved in the latter stages of commissioning and construction. We've also ordered a number of very important contracts during the course of the quarter.

Perhaps, the most significant was the mining contract. We've awarded that contract to a Malayan contract, SFTP.

This contract here also currently provides mining contract services to Newcrest's Bonikro gold mine and also Randgold's Tongan gold mine both in Côte d'Ivoire. So, they also did the bulk earth works for us on the construction of the tailings facility and did a very good job finishing on time and on budget.

So, they're certainly well-equipped to do the task and we're looking forward to them getting moving fairly shortly. In fact, the grade control drilling, which will also be performed by SFTP, is expected to start in the September quarter.

And what the aim is to ensure us that we're now -- the mining does actually commence in early November, that we've got at least three months of grade control data to hand so that we can make sure that the mining activities are well thought through before we get started. And this is another area where, I guess; we have learned our lessons from Edikan.

In terms of the security, we've also executed a Memorandum of Understanding with the National Gendarmerie of Côte d'Ivoire and that provides for a number of gendarmes to be cleverly stationed in facilities that we've built adjacent to the mine site. And the purpose of this is that the gendarmes will be maintaining peace and public order in the area and ensuring the safety of both Ivorian citizens and of course, foreign residents in this area on a 24/7 basis.

So, that's something that is worth having. So, the development of Sissingué is carrying ahead on all fronts and indeed is looking very, very solid.

And really even the most skeptical visitor at the Sissingué and we've had a few in recent times, have come away really very impressed by what they've seen in the site. We're really excited about this project and we're looking forward to starting -- it's starting to contribute gold production and cash flow to the group in the March quarter of next year.

And while I'm actually on this, I just would like to make the point that while Sissingué has a relatively short mine life when you compare it to Edikan or Yaouré, the opportunities for extension of the reserves are very, very good. And in the meantime, we'll have a relatively high-grade, relatively low-cost operation that will provide us a second income stream starting very early next year.

There's a lot to like about Sissingué and our development team and the construction team have done a very good job in bringing that mine into existence and if they're listening to this call, I'd say well done to you guys as well. Now, looking forward, bear in mind that we are looking to be producing from Sissingué in the first quarter of next year.

So, looking forward to fiscal 2018, we will be producing gold obviously from Edikan for the first half of this year, but as I say, for March next year, Sissingué kicks in once commissioning is completed. And so looking from a guidance perspective, what we're expecting is that for this half year, for the December half year, we'll produce in the range of 110,000 to 125,000 ounces, and in the second half, 140,000 to 160,000 ounces, giving us 250,000 to 285,000 ounces for the a full financial year.

And the cost for that production will be in the range of $950 to $1,100 all-in-site cost. So, we do have another strong year coming up and I think that what we've done in the last quarter certainly can give people confidence that we can deliver on those targets.

Now, turning to our second development project and our third potential mine, Yaouré, as I said earlier, we've been making very good progress there as well. So, we're well down the path on the DFS.

By the end of June, we'd completed 63,000 odd meters of RC and diamond and net core drilling. About 56% of this drilling was resource confirmation, about 20% was grade control, and the balance was sterilization or drilling and geotech and hydrological studies.

We've got about another 7,000 meters to be done -- to be drilled this month and then we'll be finished with the drilling. The assays are progressively coming through and we're starting to incorporate those results into our planning.

Now, just to put the project in perspective, it does envisage -- we're envisaging mining from two discrete pits, one's called CMA and one's called Yaouré. Both of these pits were previously mined for oxide ore by the prior owners.

Now, the results that we've received today on CMA may confirm the tenor of previous intercepts and mineralization and it's anticipated that it will be -- the relatively straightforward architecture of the mineralization will give a very, very robust estimate for that particular deposit. And this is important because about 80% of the economic mineralization that we processed at Yaouré at this stage of the game looks like it will be coming from the CMA pit.

So, this important step will underpin the economics of Yaouré. On the Yaouré pit, the geological logging and assays that we've got today have given us a much better understanding of the structural controls that are in place and I think that the impact of that is that we'll be applying tighter controls on the mineralization when we come to do our final resource estimate then.

And what that actually means is that we do expect that we'll be mining fewer tons for higher grade, more gold, and that's very positive in terms of the economics of this project. So, we also identified, as a result of just drilling a number of other areas where we've had potential extensions to both Yaouré and CMA, and that gives us -- while we start off on what we've got, I think that the scope for extending this project will be on what's envisaged in the DFS is very, very, very good.

Now, in terms of the DFS itself, while I said it was going to take about 10 months, we didn't really started properly on it until December last year when we were granted the exploration of life and its extensions. We have done a preliminary mineral resource estimate based on about two-thirds of the drill data that we'd received by the end of July, and that has given us a very, very good insight into what the project is looking like going forward.

Now, I can't really say too much at this stage of the game given that we haven't ticked all the boxes as far as [Indiscernible] requirements are concerned, but I will say this, that we are very, very, very happy with the way that Yaouré is shaping up and we think that this is going to represent a very material part of our business going forward. I don't think it is -- there aren't too many mining companies around that can talk about their future pipeline having projects of 10 years' duration and this is what we have here, we would think.

Now, I'll just say this that I know that there a number of folks out there, people who are in the banking or investment community or corporates who have looked at the project at some time in the past and have made various observations around it. All I can say is this, if you are seeking an opinion of someone else in Perseus just to the quality of this project, just bear in mind that unless that person has actually worked on the project with us in recent times, they really don't know what the situation is.

I can tell you that this is an excellent project. It's looking very, very good, and we're looking forward very, very much to releasing results progressively as the year unfolds.

The targeted completion date for the feasibility study is October this year. We'll finish the results slightly prior to that, but we're looking forward very much to getting these results add into the market and being able to demonstrate that not only do we have an existing mine and a second mine coming on production, but we've got a third mine queued up and ready to go and this third mine is going to contribute very strongly to Perseus going forward.

Now, one of the things that is important for us in terms of making that happen is to ensure that our social license is intact and in fact that we're working in tune with our host communities and governments. And I've got to say on that front, things are moving very positively.

We have, during the quarter, finalized negotiations around the compensation for land and crops. And that will give us full access to the proposed Yaouré site for future construction operating activities.

The payment of those computation payments will be very, very shortly as soon as we'd manage to finalize all of the bits and pieces that need to be done before payments can actually start flowing. But I think the community is in line with this.

The government is in line with this and as I say, we're looking very much to the future here, very excited about what Yaouré is going to contribute to us going forward. Now, turning to corporate matters, based on the gold price of $1,242 and an exchange rate of 0.7687 at the end of June, we had cash and bullion available of about $43 million at the end of June.

This included $24 million of cash and 11,741 ounces of bullion, which were valued at $19 million at that time and by now, I expect that bullion has been converted to cash. Now the balance of $43 million is about $21 million less than the balance at the end of March.

But what it does do, it takes into account the cash that has been generated at Edikan, of about AUD12 million, all the capital investment at Sissingué, which is $19 million in CapEx, another $7 odd million in evaluation and exploration expenses, and of course, corporate costs, which included, I might say, a payment of AUD7 million off the short-term working capital facility that we drew down last quarter. So, in fact, the -- that debt is down to $15 million.

At the end of the quarter, we had about 153,000 ounces of hedging in place at an average price of $1,272. And that gives us a bit of cushion in terms of the future gold price, although I did note that the gold price had come up a bit last night, so [Indiscernible] that continue.

I mentioned that in terms of debt, we have parsed out to repay the $20 million facility that we drew last quarter and that's running to schedule so that will be fully repaid by March 2018 next year. We've also put in place, as I mentioned, a $40 million project debt facility to be used to finance the completion of the Sissingué development.

We've executed the agreement on that and we're currently in the process of satisfying some fairly straightforward CPs. So, we'll be -- we started to draw on that cash as it's needed later on in this quarter.

So, what this all means is that not only are we generating cash from Edikan, but we've got cash in the bank and we've got an undrawn line of credit. Now this situation has come about through careful development and execution of a very specific financing plan.

A number of commentators seem to doubt our ability to do this, but we've gone through some very prudent financial management by our corporate office team. We've put ourselves into a very good place financially.

We're not overloaded with debt, we don't have a lazy balance sheet, we're not totally exposed to the gold price. As I said, we're in very good shape financially and looking forward to driving the growth on our pipeline coming forward.

Now, currently on this call, I've been making reference to what's occurred in the equity capital markets over the last six months, and the Perseus share price in particular, and which I acknowledge has not been very good and certainly doesn't reflect anything like the intrinsic value of our business. I think that everyone will probably be very aware of the market fluctuations brought about by some fairly major shifts in the GDXJ fund over the last 12 months.

In our case, it involved buying about 140 million shares in December and then offloading 95 million of those earlier this year. In addition to this, due to the liquidity of our shares, we've been targeted by higher frequency traders and also some short-sellers who seem to be intent on improving their position by circulating rumors into the market about our financial position, et cetera, which is just simply not right.

The other day, I was taken to task by a shareholder for not appearing to have a strategy for neutralizing these market forces and I think my response to this is worth repeating here. Perseus is not in a position to control what goes on in the market, but we are, however, very capable of controlling what goes on within our company.

And as a result, we think that the most effective strategy that we can implement to deal with the vagaries of the market is to build an irrefutable case for investment in the company by maximizing production, minimizing cost and maximizing cash flow and delivering consistent growth. I think that our results this quarter have added to our investment case and hopefully, the things that I've talked about on this teleconference have also gone some way to highlight our achievements.

If not, and in case you've missed the key points I've been trying to make, let me just run through them again. Firstly, Perseus is producing gold in accordance with our plan at costs that we're planning for and generating positive cash flows for every ounce of gold that we sell.

Secondly, our development projects, Sissingué and Yaouré, are both running on time, they're on budget, and the development of Sissingué is fully funded to completion. Thirdly, we're in very good shape financially.

Our financing plan is serving us as well. And we're fully funded to complete development of Sissingué.

We're generating cash, and we'll start generating cash from Sissingué early next year as well. Finally, Perseus is making excellent progress towards delivering our short to medium-term growth objectives.

Unlike some of our more highly favored peers, we don't need to go out and find new projects; we don't need to buy them. We're in a position to deliver this material growth in production and earnings from the projects that we currently own.

And I think the June quarter that we've just finished has highly demonstrated that we're starting to accumulate a very, very solid track record of delivering on our promises and presenting a very credible case for investment. So, with that, I would like to end the call and happy to take questions.

Thank you. Good morning Jeff, congratulations on a very good quarter.

Certainly looks like you have definitely turned the corner there. Just one question from me today in relation to your guidance.

Are you in the position to give a split between first half and second half at Edikan?

Yes, the first half is 100% Edikan and the second half is -- there's a small amount in there for Sissingué. I guess we've a little bit gun-shy on making bold numbers around Sissingué, given that it is a startup project.

But you can just -- you can deduct a smallish amount from that second half guidance and that's Edikan.

And is it safe to say that Edikan's split between first half and second half is relatively even, and I can do the math from there?

No, the second half actually improves a bit.

Okay. All right.

Thanks Jeff. Again, congrats on a good quarter.

Thank you.

Good morning Jeff. Good results.

I just wanted to -- a follow-up question to the Sissingué spend for the rest of this year, the $40 million, can you just breakdown and how that's distributed towards the first gold pool?

How it's distributed? You mean on a month-by-month basis?

No, I can't off the top of my head.

Quarterly. Just how -- is that quite lumpy, is that just even distribution towards commissioning?

Look, I don't have that number off -- in the top of my head. But if you spend it, I guess, with a slight waiting towards the first quarter, lower in the second, then you'd be pretty much on track because as you get towards the end of the exercise, we're in the commissioning stage, we're running pipes and electrical cables and stuff.

And that doesn't involve the heavy expenditure and the purchase of plant sites. So, the waiting would be to the front end.

I don't have those specific numbers in my head, I'm sorry.

No problems. Thank you.

Thank you. Good morning Jeff.

The one thing I just wanted to clarify, you talked about the improved performance at Edikan, the ore blend was one of the contributing factors with the mining from the various locations. Was it safe to assume that the ore blend has been implemented to be maintained on an ongoing basis for the foreseeable future?

Yes, I think that's a fair statement. I mean, obviously, over time, the amount of transitional and offsite ore that's available to us just to sweeten the blend will decrease.

I mean, look, what the impact to that is -- there's two impacts of the proportion of transitional oxide. One is that because it get through the mill very readily, it does improve your throughput rates.

But on the other side of that equation, it does impact on your recoveries because the recoveries of that material is lower than the ore pressure. So, what we need to do is to balance that out over a period of time and try and find the sweet spot where we get throughput and recovery as well.

Okay. That makes sense.

And with the grade control drilling at Sissingué, maintaining a three month rolling lead-time, would that be the plan going forward having identified the importance of doing the grade control?

Yes, absolute minimum of three months, I think, to make sure that we've got adequate time to absolutely understand the nature of the ore body. It's very important at Sissingué, actually, I mean, it's very important everywhere, but at Sissingué, in particular, because there are some very, very high-grade zones as you probably recall from the drill results that we published and we need to make sure that we don't mess up the mining of those things.

So, grade control is very important. I mentioned in terms of our operational readiness plans, the fact that we're bringing people on, well, just about the first people that we will have on Board will be the geologists and the grade control guys to make sure that right from the get-go, we're getting the right material into the mill.

Sounds good. That's it for me.

Thanks Jeff.

Thank you.

Yes, thanks Jeff. Thanks again for a stress-free quarter.

It's good to have. Two very small ones for me please.

First of all, with respect to the impact in the quarter of the back payment of wages, can you sort of quantify what that is so we can reverse that out on a go-forward basis?

Look off the top of my head, I'd be guessing here, there are probably $2 million or $3 million I would think it would be.

Okay. Thank you.

And then secondly, with respect to recovery of 86% you achieved how much of that is sort of sustainable because the blend versus the contribution from what you've done to the plant? Does the plant upgrade the debottlenecking?

Does that contribute to that improved recovery? Or is it all simply the more satisfactory blend?

Look, it's a couple of things actually. I mean, the blend certainly contributes to it.

But what we have been doing is running for very extended periods of 24 hours a day. So, like we -- I think we ran something like, during the quarter -- towards the end of the quarter, about 30 days of 24 hours a day.

Now, when you've got that level of stability in your process, it does improve the recovery because as you'd note, closing down, restarting instability doesn't help recoveries. Now how much exactly that contributes and how much the blend contributes, I can't say exactly.

But certainly, having steady state in the process is really, really important in terms of getting the float system working well and then down to the CIL.

Great. Thanks Jeff.

By the way, Mike, I'm glad you've had a stress-free quarter because I wouldn't say the same for us.

Well, we just have to look at what you deliver, but you have to put it together. So, I appreciate it.

Thanks Jeff.

Okay. Well, thanks very much for joining us on the call today.

Just repeating the point, it has been a good quarter. We do feel very confident that things -- and the future is looking very bright for us on all fronts.

And we look forward very much to talking again next quarter with even better results. So, thank you very much and we will see you shortly.