Perseus Mining Limited

Thank you very much, and welcome to this conference call to discuss Perseus Mining September 2017 quarterly report. For those of you who are listening to the call on the other side of the world, I do thank you for joining us today and apologize for the timing of the call.

But as you'd appreciate, it's impossible to schedule a call [ since all of the ] people who are interested in Perseus. The recording of this teleconference will, of course, be posted on our website later today.

So should anyone need to turn in before we've finished, you can catch up on anything later on.

I'm also joined today by Elissa Brown, our CFO, who will assist with any of your more tricky financial questions.

Now as you all know, the March and June quarters of this year saw a strong resurgence in Perseus' operating performance on all fronts. The improved operating performance at Edikan, the advances that we made in developing our second mine at Sissingué and delivering a technically sound and commercially credible DFS for our third mine, Yaouré, have all been acknowledged as positive steps forward by the market and have led to a relatively strong share price performance during the period compared to some of our more fancy West-African-focused peers.

However, not unreasonably, some observers indicated that more evidence was needed to make the case that Perseus had, in fact, turned the corner and is coming of age as an investable gold mining company.

We believe that our September quarter report released today provides further evidence that we have indeed turned a corner and that our transformation is now well and truly advanced, that the third successive quarter Perseus has delivered as promised.

We're now well on track to deliver on both our December half year guidance and also the full calendar year production and cost guidance and to complete the transformation of the company from a single mine business into an investable multi-mine geographically diversified mid-tier company. So let's take a closer look at this quarter's evidence and also discuss some of the near-term milestones that we expect to achieve in coming months.

Firstly, gold production at our Edikan operation was once again strong with 51,309 ounces being produced during the quarter, and all-in site cost of $1,116 per ounce. And this is almost identical to the June quarter when we produced $51,563 at $1,112 an ounce.

And as you'll recall, that June quarter result was our best since June 2015.

The other important point to note is that during the quarter, we generated a positive cash margin averaging about USD 174 an ounce compared to USD 164 in the previous period. Given that we sold about 50,000 ounces -- 50,105 ounces this quarter that generated about USD 8 million and a little bit of -- USD 1 million of free cash flow in bullion.

There were several notable features associated with the performance. Firstly, improved grade reconciliation.

Now in July, we undertook an important business improvement initiative aimed at rectifying previous reconciliation inconsistencies in contained gold. And we did this by processing a tightly controlled and measured 165,000-tonne parcel of ore -- low-grade fresh ore from the Esuajah North pit over a 12-day period.

Now the exercise resulted in improved control and measurement of mill tonnages, but it did briefly reduce throughput head grade and therefore gold production of July 2017.

Nevertheless, based on the results of the initiative, a series of remedial measures were implemented. And I'm pleased to say that for the 6 months to 30th of September 2017, the reconciliation of contained ounces of gold between the resource model and the grade control model was 100%.

The reconciliation of contained ounces between grade control and mill is now well within accepted industry standards. So this is a -- it was a very pleasing outcome for fairly obvious reasons.

Now somewhat related to that, we also saw significantly improved head grade of ore processed during the period. The average head grade of ore milled during the quarter was up 13% to 1.16 grams a tonne relative to the 1.03 in the previous quarter.

It should be noted that, that 1.16 grams a tonne was the average for the quarter. And over the 3 months, we saw a marked improvement of grade and in the month of September for example, the average grade was actually 1.3 grams a tonne, which is well above our projected average for the financial year.

Now the improvement in grade was expected and it did take slightly longer than we intended for it to materialize. But the important thing is, though, that it has come through and should continue to come through in future quarters as higher grade ore is accessed particularly for Fobinso and the Esuajah North Pits.

The other features during the period was improved plant performance. Now during the course of the quarter, we did incur some unscheduled maintenance downtime resulting from processing the harder ore from Esuajah North.

Now I should note that this does not signal an ongoing problem with the Esuajah North ore. The hardness of the ore was well within our expected limits.

The issue was that got a concentrated period of hard ore which meant that our mill liners need to be replaced a little sooner than expected as did some pumps and chutes. So we do expect that over time, things will work themselves through and that we will have periods where the ore is not as hard as we've experienced and run time will be improved.

In any event, by the end of the quarter, things were certainly improving. And in September, we were back to the 92% run-time, which is close to target.

We did initiate a few changes and we'll be carrying out some further work in the December quarter aimed at improving run-time and throughput rates further.

And I should note that in October to-date, our run-time's actually 97%, so the trend of improvement that we saw in the latter part of the quarter has certainly continued. Our throughput rate has also continued to lift this month, and we're now approaching our average for the last 6 months.

The other thing that improved during the quarter was recovery which increased by 1%, notwithstanding the fact that we increased the proportion of oxide and transitional ore in the mill feed but -- from 5% to 13%, in order to make up for some of the downtime that I mentioned earlier.

One of the interesting things was that when we did conduct that business improvement initiative that I've also mentioned earlier involving the treatment of a discrete block of fresh ore from the Esuajah North, the recoveries achieved were very high actually. They're about 91% or so which is exactly in line with the theoretical recovery for fresh ore.

Now this is an important point because it is very encouraging as we look to the future when supplies of oxide and transitional ore start to peter out and we're processing fresh ore only. We know that the plant actually does what it's supposed to do.

The other feature I think of production from Edikan during the quarter was the continued good performance of our operating team in Ghana. I should mention that it is a predominantly Ghana -- an operating team that we have over there driving the improvements in mechanical efficiencies.

And their work is making a significant contribution to the steady improvement that we're seeing continuously at Edikan, so well done guys. You're doing a great job.

Turning to cost. With respect to our all-in site costs, these were reasonably flat during the quarter.

In terms of our unit costs, unit mining costs were fairly steady, actually decreasing from $2.91 a tonne to $2.83 a tonne as a result of more tonnes of material being mined during the period.

Unit processing costs incurred during the quarter increased slightly from $10.31 to $10.61 per tonne milled, an increase of 3%. Now the actual tonnes of ore processed was down by 13%.

So a 3% increase is actually a pretty good outcome and indicates a decrease in the overall -- the total processing cost. This, in itself, is notable because we did see a higher cost of maintenance consumables, mill [ liners ], in fact, relating to the timing of the scheduled maintenance shutdowns.

Site G&A was reasonably flat during the quarter and we averaged roughly $1.53 million a month compared to $1.54 million in the previous quarter so that was pretty flat. Combining this method on a per-ounce basis, production costs for the quarter, including ore mining, waste stripping, processing G&A, excluding royalty, came in at about a little over $1,000 per ounce compared to $974 in the preceding quarter.

A slight decrease in royalty payments and a bigger decrease in sustaining capital resulted in an all-in site cost as I said earlier of $1,116 per ounce which was nearly identical to the all-in site cost of $1,112 per ounce that we've recorded in both the June and March quarters of this year.

So consequently, the all-in site cost at Edikan for the September quarter was within our all-in site cost guidance range for the December half year, and that is encouraging going forward. So in terms of Edikan, we have turned the corner.

Some -- it was some time ago in fact, and this quarter combined with the last 2 quarters is proof positive of that.

As I said, this improvement of the performance is not a fluke but it is part of a long-term trend of strong performance, brought about by some fairly material changes in the way that we're doing our business.

So our confidence in the future of Edikan is strong. We're comfortable that the forecast that we've made about future performance will be realized, and that's very important when it comes to looking at the funding of our future development activities.

Speaking of which, let's talk first about the development of our second mine, Sissingué.

Now construction of the Sissingué mine moved ahead steadily and according to plan during the quarter. And by the end the quarter, we're about 77% complete.

The procurement's about 100% -- or is 100% complete. And at the end of the period, 91% of construction materials, plant and equipment were all on site awaiting installation.

All concrete works are complete. The concrete contract has been demobilized all plant buildings are being completed as at the installation of underground services, conduits and piping and the like.

The primary crusher's in place and erection of the SAG mills are nearing completion. And the SAG mill motor was put in the other day.

The CIL tanks are all done, including the top of tank steelwork. The diesel power station cooling system and switch rooms have arrived on site for installation.

The 7 diesel generator sets that we'll have, have arrived in Abidjan and are awaiting customs clearance ahead of being transported to site so they're not far away. Tanks for the fuel farm needed to provide fuel for the mining fleet and the power station are on site and placed in position.

So as far as construction's concerned, everything is tracking extremely well.

As far as commissioning is concerned, commissioning is the front end of the plant expected to begin in early November with ore crushing to begin in early December. So we'll have ore on the crushed ore stockpile in December.

Production of first gold is expected in the March quarter 2018 as we've been saying for some time and commercial production will -- we do believe start as of 1 of April next year.

I've said in previous teleconferences that a picture's worth a thousand words. And of course, what we have done in Appendix A of the quarterly report is included a selection of photos that record development of progress on the ground and I would encourage you to take a look at those photos.

It's hard not to be impressed by the work that's been done led by our own team and also by our various contractors, particularly the Lycopodium team. The target that we've given of first gold in March 2018 quarter is well and truly within our reach.

To put progress of Sissingué further into context, we spent about USD 16 million during the quarter on development activities, and that brings our total expenditure on the project to date including early works of about $10 million to about USD 84 million.

The forecast to cost to complete development is $32 million, and that will be funded by an undrawn balance of $30 million under our project debt facility with Macquarie Bank and the balance of $2 million coming from our cash reserves. So notwithstanding perhaps a few hedge funds, that persist in selling our stock short, the completion of development at Sissingué is fully funded, and we are definitely not coming to market for funds.

Full stop on that particular subject.

Speaking on the Sissingué operations, which we exert to commence early next year, one of the very important lessons that we learned from Edikan is the critical importance of being fully tuned up to start operations when commissioning's complete. So to this end, we've implemented a comprehensive operational readiness plan for the Sissingué operation with the objective of absolutely ensuring the following commissioning of the mine and plan, the ramp-up to full-scale production occurs efficiently as possible.

Implementations of that plan is well underway, and we're in very good shape for start-up. And even if Lycos are able to earn a bonus by finishing the commissioning earlier than expected, we'll certainly be ready to go.

Grade control drilling, for instance, is being performed by SFTP as part of the mining contract. That started in early September 2017 and is going very well.

We'll have about 3 months of grade control data to hand before full-scale mining starts early in November.

So the development and operational readiness of Sissingué's carrying on, on all fronts and is looking very solid. We're excited about the project.

We're looking forward to it starting to contribute gold and cash flow to the group in March next year and in the March quarter next year. And the other thing, I guess, is that while Sissingué's got a relatively short life, as it stands today, the opportunities to extension are extremely good and we'll be certainly working towards that when the cash flow comes up -- comes available early next year.

In the meantime, it's a relatively high-grade, relatively low-cost operation that will provide us an all-in important second income stream starting in the June quarter of next year, the June half of next year I should say.

Now turning to our second development project in our third potential mine, Yaouré. The status of this project is [indiscernible].

The DFS has advanced strongly on all fronts during the quarter and is on schedule for completion this quarter in the December quarter as we've been promising for some time.

2nd or 3rd, 1st or 2nd or 3rd, maybe. We haven't quite pinned that one down yet but suffice to say it's very soon.

And also suffice to say yet another milestone will be delivered as promised which is important.

Given the JORC and ASX disclosure requirements, I'm not able to be too specific about the shape of the project until we fully disclose, but it is looking good. And I can say that this is coming up very much in line with our expectations based on the due diligence study that we undertook before purchasing the mine in April of last year, and it's a good project, I think, as you'll find out in a couple of weeks.

What I can say is that DFS is being based on a very comprehensive body of work by our -- in our in-house engineers and consultants alike. And this is important because it's not always the case, as many of us know from bitter experience.

The study is realistic, and we are comfortable for it to be used as a benchmark for judging our performance in years to come.

It's worth noting that the DFS drilling was completed during the quarter. The program was aimed at confirming the resource that we had purchased as well as getting additional information for the DFS.

Total of 72,307 meters of RC, diamond and air core drilling was completed. About half of that was in resource definition drilling.

There was also a portion of grade control drilling done as well to help us to throw in some structures.

The CMA deposits have been drilled on the 25-by-50-meter spacing in the zone where the pit is likely to be developed. And the area deposits we have similarly drilled have a spacing of 25 by 25 except in some areas where it was drilled to grade control spacing of 6 by 8 meters.

The drill hole spacing in all of these areas we think is adequate for classification as indicated resources.

All assays have been returned to date. The results confirm a tenor of previous intercepts and continuity of mineralization in both the CMA and the Yaouré pits.

We think that the -- it's going to be a relatively straightforward structural architecture of the CMA mineralization which will allow very robust mineral resource estimate to be prepared, which is important because most of the ore, the economic mineralization underpinning the DFS will be coming from that CMA pit.

Geological logging and assaying of the drilling in Yaouré has provided us a much clearer view of the structural controls and mineralization in that pit. The 25-by-25-meter spacing has allowed the application of pretty tight controls on the mineralization in the resource estimation.

And particularly when we combine that knowledge with what we've got from the very closely spaced grade control, I think we have a pretty good handle on what that set of structures can deliver us.

So I guess, all things considered, Yaouré's looking pretty good. And we'll have a lot more to say about this project when we release the results in the near future.

I think it is definitely a case of "watch this space" as far as that's concerned.

Turning it to corporate matters. Applying a gold price of $1,283 as it was at the end of the month and exchange rate of $0.78, the total value of cash and bullion on hand at the end of the quarter was about $48 million, AUD 48 million.

This sum includes $25 million of cash and 14,000 -- 14,179 ounces of bullion that was valued at $23 million.

The balance of $48 million is about $5 million more than the cash balance at the end of June and the increase in cash and bullion during the quarter, takes into account a number of inflows, for instance, $11 million coming from -- AUD 11 million from Edikan positive working capital move about $16 million. We did draw down $10 million on the Sissingué facility, but we also paid $5 million up on the company's short-term corporate debt facility as well and we spent $22 million at Sissingué and about another further $6 million on exploration and evaluation expenditures.

So all in all, those things balance out so the cash balance is up about $5 million on the quarter. At the end of the quarter, we had go-forward sales contracts in place for about 165,000 ounces at $1,272 (sic) [ $1,274 ].

That was -- in terms of ounces, that was slightly up on where we were in the previous quarter as we took advantage of high gold prices during the quarter to supplement the book.

Now I should say that the hedging that we have in place includes all mandatory hedging required under the term of our debt facility so there's no mandatory hedging. If we do hedge further in the future, it will be solely at our discretion and is part of our overall risk management plan which has stood us in pretty good stead to date.

In terms of debt obligations, as I said, we did pay off $5 million of our corporate debt facility in September, so $10 million is the outstanding balance under that facility, and that will be fully repaid by March next year, March 2018. We've also drawn USD 10 million under the USD 40 million Sissingué project debt facility and we do expect to draw the remaining USD 30 million over the next couple of months as we finalize construction of the project.

Now by the time that Sissingué starts to -- goes into commercial production on 1st of April next year, our corporate facility will have been fully repaid, and the total amount outstanding -- debt outstanding for the company will be $40 million under the project facility, and that will be progressively repaid. According to the schedule, this could be -- be paid sooner by September 2020.

So what all this means is that not only are we generating cash from Edikan but we've also got cash in the bank and we've got an undrawn line of credit available to us. So suffice to say, we are in fairly good shape financially.

So in conclusion, I think that our results for the September quarter have added to a strong body of evidence supporting our investment case, and hopefully, this teleconference has helped to highlight some of these achievements. Just in case you have missed the key points from our quarterly report that we released today, let me repeat them for you.

So firstly, Perseus is producing gold in accordance with our plans at a cost that generates positive cash margin for each ounce of gold we sell. We've been doing this consistently now for 3 quarters and we expect this to continue.

Secondly, our development projects, Sissingué and Yaouré, are both running on time and on budget. The development of Sissingué is fully funded.

And between internally generated cash and some bank debt, we're very confident that we'll be able to fund the Yaouré development which we hope help will kick off sometime in the second half of 2018.

Thirdly, each of our projects, but particularly Sissingué and Yaouré have excellent exploration potential. Now we have been a bit quiet on the exploration front in recent times as we've deployed cash to development projects.

However, that doesn't mean that our exploration teams have been idle. In fact, they've used the time very wisely to identify an exciting array of targets.

And when cash is available for exploration starting next year, we are expecting to produce some impressive organic growth delivered from what are already a reasonably good set of assets that we hold.

Fourthly, we're in good shape financially. Our financing plan, including our prudent gold price hedging program, is serving us very well.

And our financial management team is doing an excellent job.

So I guess all things considered, we are making excellent progress towards delivering our short- to medium-term growth objectives. We don't need to find new reserves.

We don't need to buy new projects. We're in a position to deliver material growth and production and earnings from the assets that we currently own and on which we're currently working.

As we've been demonstrating for the 3 successive quarters, we are accumulating a solid track record of delivering on our promises and presenting a credible case for investment that I think that the market is going to find increasingly difficult to ignore.

Thanks very much for your attention. And if you'd like to ask any questions now, I'd be happy to answer them.

Okay. Well, thank you very much.

I hope that's a result of having comprehensively addressed all of the issues around the quarter rather than anything else. But once again, thanks very much for attending the call.

We are on track. We are comfortable with the way we're going and look forward very much to continuing to have these good reports to release each quarter.

The next time we have a teleconference will be in early November when we release the results of the Yaouré DFS, something else we're quite looking forward to. So once again, thank you very much, and I wish you all a good day.