Perseus Mining Limited

Good morning and welcome to the Perseus Mining's Webinar and Conference Call for its September 2021 Quarterly Report. All attendees are in a listen-only mode.

If you would like to ask a question, please enter it into the Q&A panel. I’ll now hand over to Perseus Mining's Managing Director and Chief Executive, Jeff Quartermaine.

Thank you, Jeff.

Thanks very much, Nathan, and welcome to Perseus Mining's September quarter webinar. This morning, I'm joined on this call by several members of my senior management team, including Lee-Anne de Bruin, Finance; Paul Thompson, Business Growth; Jessica Volich, Group Sustainability Manager; and Doug Jones, Exploration.

What we'd like to do today is to provide just an overview of the September '21 quarter as documented in the report that we released to the market earlier today. And then follow that up with a Q&A session to address any issues that aren't clear either from the report, my presentation or one of the many market releases that we have published earlier in the week.

Now cutting to the chase, Perseus has this quarter once again achieved another record operating performance, this time producing 112,796 ounces of gold, 10% more than the June quarter, or 28% more than the March quarter. Our weighted average all-in site cost decreased by $81 an ounce or 8% compared to last quarter to US$966 an ounce, and that included production costs of US$857 per ounce.

Now by selling our gold at an average price of US$1,655 per ounce during the quarter, we generated a cash margin of roughly US$689. That's about AU$930 for every ounce of gold produced and that resulted in our net cash position increasing by over US$40 million quarter-on-quarter.

Our cash and bullion on hand at the end of the quarter amounted to US$196 million or approximately AU$265 million. Simply put, this quarter, Perseus has done once again what we said we would do.

We are on course to achieve our stated aim of producing around 500,000 ounces of gold or more per year and a cash margin of $400 an ounce from fiscal '22 onwards. And as announced recently, through exploration success, we've also made strong progress towards being able to sustain this production level right out to the end of the decade.

During the quarter, two of our three mines, namely the Yaouré and Sissingué in Côte d’Ivoire performed exceptionally well. Our third mine Edikan in Ghana not so much.

But given that we've now have multiple mines in our portfolio, the impact of Edikan being a bit off target this quarter has not detracted from the overall performance of the Group. We have after all established a new production record by increasing overall production by 10%.

What we have done I think is very clearly demonstrates the benefit of Perseus becoming the multi-mine, multi-jurisdictional company that we set out to become several years ago. As I said in the past, the continuing strong performance by Perseus is a result of a lot of hard work and resilience in challenging circumstances by what is a very talented team of people that we have spread across our three operating sites, several exploration sites in West Africa, offices in Accra and Abidjan and, of course, our corporate office here in Perth.

My thanks goes to all of those who've contributed this quarter, including the very supportive families of our staff who are required to spend extended periods of time away from home. Now what's also pleasing is that everything that has been achieved this quarter has occurred in a sustainable manner, as we reported in our very comprehensive fiscal '21 sustainability report that was released earlier this week.

Both the report and the webinar that was held on Monday to discuss that report I think served to underline that Perseus is a well managed company, staffed by professional subject experts, who are well up to the task of implementing our mission of generating benefits for all of our stakeholders in very liberal proportions. So in summary, as a company, Perseus continues to go from strength to strength, thoroughly justifying the rewriting in the share price by the market in recent weeks.

Now for those of you who haven't yet had an opportunity to read the quarterly, let me talk in a little bit more depth about some of the key elements of our performance, before opening up to any questions that you may have. And as I said earlier, I am accompanied today by members of my senior team who are available to respond in detail to your questions as appropriate.

So firstly, let's discuss Yaouré, which as you know is our newest gold mining operation. We produced 64,588 ounces of gold at Yaouré during the quarter at a production cost of US$572 per ounce, giving rise to an all-in site cost of US$671 per ounce for the quarter.

Now under the circumstances, this was quite a remarkable performance by the team at Yaouré. We experienced 715 millimeters of rain on the Yaouré site during the quarter.

And as might be expected, this periodically interrupted mining activities and prevented us from mining exactly where we wanted to mine. We also experienced some unexpected mechanical failures in the plant, not surprising at this stage of its life during the quarter and these needed some urgent repairs.

This also detracted slightly from production during the quarter. Now notwithstanding these challenges, we still managed to increase gold production by 73% quarter-on-quarter and decreased our all-in site cost by 35%, and set ourselves up for a very strong finish to the half year period.

In that regard, I can confirm we're well on track at Yaouré to deliver on our half year guidance of 130,000 to 140,000 ounces at an all-in site cost of $675 to $775 an ounce. So that's very pleasing.

It's worth noting that the average selling price from Yaouré this quarter was $1,690 an ounce which meant that our cash margin at the site was US$1,019 per ounce or AU$1,377 per ounce for our Australian business. Given the amount of gold that we produce, this meant that our notional cash flow for the quarter from Yaouré was US$65.8 million, or about 41.6 million more than in the June quarter.

So that's a fairly solid result in anybody's language or currency come to that. The other thing about Yaouré that's worth noting is that the reconciliation between our block model and ore fed to the mill remains positive.

In the nine months since we started mining, we've got a positive reconciliation of contained gold of about 5% which is very encouraging. In early August, we released an updated life of mine plan with Yaouré as we promised.

And now while this included modest increases in the mineral resources in all reserves, it included encouraging information on lower operating costs than previously announced and also increased gold production in the early years of the mine. We do expect to update that life of mine plan again around the same time next year.

And as indicated in our market release on exploration published last Thursday, the results of infield drilling at the CMA underground prospect will be used to upgrade the current inferred mineral resource estimate to indicated status, enabling a prefeasibility study for an underground mining operation to be completed by late June next year. Now this work will also include an initial ore reserve estimate that will be reflected in the next version of our life of mine plan.

So at Yaouré is everything that we hoped it would be and then some. We've been running on 100% high grade pressure from the CMA pit for some time and weather permitting, this quarter we'll get a clear run at some fairly high grade material coming from the pit.

So watch this space, as I say. At our other Ivorian mine, Sissingué, we produced 16,067 ounces of gold during the quarter at an all-in site cost of US$931 per ounce.

Given that we saw the Sissingué gold at a weighted average price of 1,624, we had a cash margin of US$693 an ounce and generated national cash flow of about $11 million for the quarter. Once again at the end of the quarter, Sissingué is well on track to deliver on the market guidance for the half year which is set at 25,000 to 35,000 ounces at an all-in site cost of 950 to 1,070.

Now at Sissingué, just as we did at Yaouré, we experienced a very wet season this year with something like 798 millimeters of rain falling on the site. This impacted production to an extent particularly in terms of periodically preventing access to pits for mining, which meant that for extended periods, we needed to be taken from the run of mine stockpiles.

The weather also impacted the rate of feeding material to the mill and that also reduced production a little bit. Not understanding this, the results achieved this quarter at Sissingué were very much in line with our expectations as we transition from a very high grade zone of all that we'd mined for the last few quarters to a lower grade zone this quarter.

I should also note that that heavy weather I mentioned towards the end of the quarter played absolute havoc with mountain surveys and the like, particularly since the bottom of the pit was submerged with water. And so the mineral resource to mil reconciliation for the last three months looks a little out of line relative to prior quarters, it will -- nine quarters that we’ve done.

So we do expect that things on this front will improve as the mine dries out and mining activities are restored. So we're not overly concerned by that at this particular point in time.

Of course, given that our investment in Sissingué was fully repaid quite a long time ago, the operation continues to make a very positive cash contribution to Perseus coffers even though the results this quarter were down a little on the previous quarter. We do expect this production level being sustained for the next couple of quarters while we're preparing to receive ore from the satellite deposits at Fimbiasso and Bagoé.

Now in this regard, we have prepared a standalone DFS for the Antoinette, Juliette and Véronique deposits which are located on the Bagoé license that we acquired last year. This DFS, together with an environmental and social impact assessment, will soon be lodged with the Minerals Commission, along with an application for an exploration permit for this area.

We're very confident that as the concept of satellite mining has been accepted by the Ivorian government that we can prepare an optimized life of mine plan for the combined Sissingué, Fimbiasso and Bagoé operation, rather than looking at standalone operations. Optimizing this plan does involve a little more work than we were expecting, including some additional drilling.

So it's taking some time to finalize. But we do expect that this will extend the life of the operation at Sissingué well beyond its current fiscal 2024, even if no more ore is discovered on the licenses, which at this stage seems unlikely.

We expect that the wait will be well worthwhile, so we'll get that out as soon as we practically can. Now turning to Edikan, September quarter gold production by Edikan was 32,161 ounces at an all-in site cost of 1,574 an ounce and that was below our expectations both in terms of production and costs.

Now the disappointing performance was driven principally by the grade of the ore that was sent to the mill during the quarter. All other key operating parameters, including mill runtime, throughput rate, quantity of all milled and recovery were all in line with forecast, plus or minus a couple of percent.

The during the quarter came from the AG pit, ROM and heap leach stockpiles and a small amount of material mined from the remnants of the Stage 2 Fetish pit. Now this all was splendid in varying proportions depending on availability and fed to the mill.

And during the quarter, the head grade of the mill feed averaged 0.72 grams a ton, which was well below the average grade of prior quarters and certainly below what we were expecting to see. This reduced head grade was the result of several factors, including poor equipment availability by our mining contractor, Rocksure.

This generated a shortfall in the availability of fresh ore from the AG pit which was the designated major source of all this quarter. Now the reason for that, there's variety of reasons and a number of them can be strung back to COVID related supply issues which I think almost every man in the world is experiencing.

In this case, it was in the area of tires. This shortfall in the AG ore created the need for the mill feed to be supplemented by low grade material taken from the run of mine stockpile.

Now compounding this problem, the greater the threshold that was mined from AG didn't reconcile well with our block model, and therefore our forecast. This was possibly a function of the fact of the MIK, Multiple Indicator Kriging modeling technique that was used, being negatively influenced by the grade of ore already mined in the last cutback of the pit.

Now we do believe this is a temporary situation that will self correct as we go further into the ore body with our mining. This optimism is very solidly based, I should say.

It's based on the fact that using the MIK model, the global estimate of gold contained in the total AG pit mineral resource reconciles within 4% to 5% of grade control. As the global representation, MIK’s tonnages are fairly accurate.

The grade appears to be slightly overestimated, and that's how we get to that 5% variance. So we do think that that's situational.

It will fix itself up as we go forward. There was a period of some poor mining practices as well that didn't help matters and that was stopped pretty quickly.

Now in each of these areas, the cause is being addressed and the remedial action is certainly expected to result in a significant improvement in reconciliations and therefore operating performance in coming quarters. We're already seeing evidence of this in the latter part of the September quarter and the December quarter to date.

So that's very pleasing. And at this stage, we do remain on track to deliver our guidance for the half year which was set at 70,000 to 80,000 ounces at an all-in site cost of 1,350 to 1,450.

I've said this before and I'll repeat it again. Edikan has never been an easy mine, but we are resilient and we are quite practiced at analyzing problems and addressing them fairly quickly.

That said, the challenges in Edikan over the years did drive us to seek diversity in our production portfolio and add additional mines located in different jurisdictions, which is what we did through the development of Sissingué and more recently, the Yaouré mine. And as I said earlier, the benefit is there to be seen.

Even though Edikan did underperform this quarter, the outperformance of the rest of the portfolio compensated and led to another quarterly record of production. Looking to the future, our group production and cost guidance for the next -- for the six months and 12 months periods ending 31 December remains unchanged.

We predicted 225,000 to 255,000 ounces at $925 to $1,025 an ounce and as noted when commenting on the individual mines, we are on track to achieve this provided we can produce in line with our forecast between now and the end of the year. And I've every confidence that our team will do just that, just as they've consistently done in the past.

Now turning to our financial position. Throughout the September quarter, we've continued to improve our balance sheet strength through generating strong cash flows and prudent financial management.

The notional cash flow from operations of US$78 million that was generated this quarter, it allowed us to fund exploration at all three operating sites, pay all manner of taxes, including income tax in Ghana, pay dividends to the government in Cote d'Ivoire, fund a range of social programs for host communities, pay corporate overheads and still hold cash and bullion at the end of the quarter of US$196 million, giving us net cash position of $96 million after taking into account our outstanding debt of $100 million. And as I said earlier on, this net cash position was about 40 million better than the position at the end of June.

Clearly, we're continuing to benefit from the strong dollar price but we're also benefitting from strong production growth at the same time. And in that sense, the timing of our production growth has been very fortuitous.

And on that basis, we should continue to see further growth in the balance sheet strength. Now for the record, we do hedge the price of a small percentage of our gold production.

This is something that people regularly ask us about. At this time, we're hedged to the extent of roughly 20% of our projected production over the next three years at a weighted average price of $1,626 per ounce.

Now this average price is about $31 an ounce more than it was at the end of the June quarter as a result of actively managing our hedge book which has enabled us to average up the price of the book to a level that's now well above our weighted average all-in site cost even when things got slightly Edikan this quarter. As I previously noted, our weighted average cash margin for the quarter was US$699 an ounce.

So even with hedging and even with some minor issues there at Edikan, we're still able to exceed our target of $400 an ounce by well over 50%. So that was a fairly healthy position.

Now before moving on from financial matters, I would also like to just briefly mention the very good financial results for the financial year ending 30 June that were announced earlier in the September quarter. As listeners would be aware, FY '21 yielded strong results with net profit after tax up 48% to AU$140 million, operating cash flow up 42% to AU$302 million and net tangible assets up 10% to AU$965 million.

The strengthening of our balance sheet has allowed us to view the future with competence and for the first time return capital to our shareholders if shareholders approve our resolution to this effect at our AGM in November. This is a significant milestone for Perseus and I think very tangible evidence that the company is coming of age and delivering tangible returns to its shareholders.

And that's another promise that Perseus has delivered on. Now speaking of the future, our plans for continued growth of our business is now a regular topic of conversation with investors.

In this regard, we've been very transparent in advising those that asked that our primary focus at the moment is on growth through organic means; in other words, through exploration success and applying engineering skills to convert discoveries into mineral deposits that can be economically mined. Last week, as I mentioned earlier, we made two separate market releases that gave substance to the ambition that I’ve just stated, and I'd like to strongly encourage listeners to take a close look at those rapid releases that are published on consecutive days on the 13th and 14th of October, respectively, as they contain far more detail than I can summarize in a few short moments on this webinar.

That said, let me give you a bit of a flavor for what the market releases did cover though. Firstly, we embarked on a successful exploration at Nkosuo which is a deposit formerly known as Breman.

It's a target that's on the Agyakusu license a few kilometers from the Edikan mill in Ghana. And here it appears that we've discovered a fairly large granite-hosted body of mineralization.

The intercepts that have been returned to date are fairly lengthy and consistent. The ore body appears to be about 600 meters in strike length, so up to 200 meters.

To date, we've been drilling on an 80 x 80 meter grid. The focus is now on closing up the current hole spacing to 40 x 40 and ultimately to 20 x 20 in local areas to support a maiden mineral resource estimate we prepared in the March quarter next year.

Met testing and geotechnical drilling is also underway. So the ore reserve potential can be evaluated early in the September '22 quarter.

Now this discovery hasn't been closed off yet to the South and it's actually looking quite decent. And our Head of Exploration, Doug Jones, is on hand to take questions on this work at the end of my summary.

The second drill program that we reported last week was at the Yaouré mine where we've been infield drilling as well as stepping out on the CMA underground target. And we've also drilled on a CMA analog structure at CMA East.

Due to the imminent cutback of the CMA South open pit and the likely loss of suitable sites for drill pads, we were forced to have the first stage of down-dip drilling focused on the southern end of the structure where grades are generally lower than the northern end. Drilling today has been -- it's comprised 34 RC collard diamond holes, infilling on a 50 x 50 coverage and that will go to 25 x 25 to convert that inferred resource to indicated.

Results to date from the infill drilling have been quite encouraging actually, even though we have been focusing on that lower grade end of the deposits as I mentioned. Intercepts generally consistent with those that have been previously encountered both in thickness and grade.

The style of mineralization is also consistent with previous intersections, which means that this is looking very, very interesting indeed as a potential underground mine. Step-out drilling to investigate the next 300 meters down-dip from the current underground resource has also started and 27 pre-collars were drilled there.

The diamond tails to complete these holes down to their targeted depth has also recently kicked off. The step-out program is being guided actually by the results of Perseus' early 2020 3-dimentional seismic survey that clearly identified the CMA structure extending to depths beyond the current drill coverage.

Drilling is being undertaken on an initial 100 x 200 meter pattern to better define the position of the structure and the intensity of the mineralization. And if the results are encouraging, as we expect, then we'll infill to 100 by 100 and allow the preparation of an initial inferred mineral resource estimate.

The results from the CMA underground infill and extension drilling received today demonstrate that there is real potential here for us to materially grow our gold inventory, and that's a fairly pleasing thing. Drilling to test the near surface extensions of a CMA look-alike structure of the main structure, we call this CMA East prospect.

That continued during the quarter as well with 7 RC holes drilled. Some pretty reasonable results have been also achieved here as well.

I think it'd be fair to say that at this stage, we don't fully understand the structural geology and further work is certainly warranted here. But certainly what we've seen today is very, very encouraging.

As mentioned earlier, the results from the infill drilling at CMA underground will be used to upgrade the current inferred mineral resource estimate to indicated status and we'll do the prefeasibility on the underground mining operation that we completed by June 22 next year allowing a reserve estimate to be done. Now, as I should say at this point too I guess very much that while we have focused very heavily on our organic growth side of the business, the potential for inorganic growth opportunities involving mergers and acquisitions is also there.

And our team, headed up by Paul, regularly assesses opportunities. And there’s certainly things there of interest to us.

As I’ve said before, given the challenges of implementing value accretive M&A, applying very strict financial discipline as we do in assessing opportunities and also reaching a landing with counterparties on social issues, we're not pinning our hopes on this activity for delivering growth in the immediate future, preferring as I said to focus on near mine and early exploration growth strategies, but I do stress that we are looking -- we are actively looking for the right opportunities. And if we are able to execute a transaction that on a risk weighted basis is value accretive to shareholders, then you will be the first to know.

So, in conclusion, as I said at the start of the call, September quarter has been another very good quarter for Perseus in many respects. Across the board, our production is growing, our costs are decreasing.

We’re managing our business successfully in the face of a global pandemic. And financially, we're getting stronger by the day.

We are subject to shareholder approval, planning to make a maiden return of capital to our shareholders this December having declared a maiden capital return of 1.5 per share or yield 1% when we published our fiscal '21 financial results in August. Our share price has performed reasonably strongly in recent times, and it does appear as if the quality of purchases, performance and earnings capacity is being recognized by the market.

Finally, we are looking forward very much to bringing you further news of our achievements in three months from now, , as they say in northern Cote d'Ivoire, but I can assure you that the team is working very hard to deliver this and we're very optimistic that that will be the case. Now my colleagues and I are very happy to take any questions that you may have.

Thank you.

Thanks, Jeff. If you want to ask a question, please enter into the Q&A panel within zoom.

Your first two questions come from Ben Spencer at Canaccord. Firstly, he's congratulated you and the team.

His first question is what had more material impact at Edikan; ore access issues or the grade reconciliation?

That's actually going to be access to be frank. The reconciliation was problematic, but not being able to mine as much material from the AG pit was something that was a little.

And second question is regarding the Breman exploration. He said subject to permitting and completion of the resource, how quickly could this prospect find its way into the mine plan for Edikan?

And are there any early indications of what you think the resource could look like?

I think I'll put that question to Paul Thompson, who's responsible for doing those studies. Paul, would you like to respond to that?

Thanks, Jeff. You'll see in the release that we put out last week that we've made an estimate -- made an exploration target rather than just exploration results.

And what we said is that we expect around 300,000 to 500,000 ounces from that deposit. And what we are already working on at the moment is the initial metallurgical test work, geotechnical work to convert that to a reserve by around this time next year or a bit earlier than this time next year.

So that's our target and it would then go straight into the life of mine plan for Edikan.

Thanks, Paul.

Thank you. I’ll just repeat.

If you'd like to ask a question, please enter into the Q&A panel within Zoom. Jeff, it looks like there's no further questions at this time.

So I'll hand back to you for closing remarks.

Okay. Well, look, thanks very much.

I guess hopefully the reason there's no questions is because people are busy placing their buy orders on the stock. But if not, anyway, thank you very much for attending today.

As I said, it was a fairly strong quarter and we expect very much more to come. So thank you very much.

And we'll speak to you again in three months if not before then. Thank you.