Perseus Mining is down 16% YTD despite rolling out its best ever production year of more than 530,000oz in FY23
\nNow a regular dividend payer, the company has a massive warchest of US$594 million in cash and bullion and US$300m in undrawn debt to pursue M&A
\nBut Perseus MD Jeff Quartermaine tells us the focus is also on organic growth<\/p>\n
Perseus Mining (ASX:PRU)<\/a> is one of the great turnaround stories on the ASX.<\/p>\n The West African gold producer\u2019s share price tumbled over two years from 2011 to 2013 after realising, shock horror, that its previously rampaging share price meant it would have to go through and develop the Edikan gold mine in Ghana. <\/p>\n Since February 2013, a new management team led by former CFO Jeff Quartermaine set it on a path to grow into the ASX\u2019s only 500,000ozpa African gold producer and one of the few ASX gold stocks paying reliable dividends.<\/p>\n Now with over a decade of time as CEO under his belt, Quartermaine is faced with the challenge of growing the company further without blowing up the hard-fought gains of the past 10 years.<\/p>\n Perseus shares fell to 22c in December 2013, shortly after a rejig of the life of mine plan at Edikan to deal with high costs in a falling gold price environment.<\/p>\n From that point the miner added the Sissingue and Yaoure mines in Cote d\u2019Ivoire, bringing them online to eventually crack the 500,000ozpa mark in FY23, selling 537,564oz at an all in site cost of US$959\/oz. In spite of inflationary pressures felt across the globe, that is well below the cost of production Perseus absorbed in its early years.<\/p>\n While its share price hit a 10-year high of $2.49 in April this year, it is counter-intuitively down almost 16% YTD despite near record gold prices.<\/p>\n That has led to calls from analysts and management alike that the stock is mispriced compared to its Australian peers, especially with US$594m of cash and another US$300m in undrawn debt finance waiting to be deployed on acquisitions.<\/p>\n An unfortunately timed foray into Sudan via the purchase last year of TSX-listed Orca Gold to acquire the Meyas Sand project, shortly before the eruption of a civil war in the African country, probably played a role.<\/p>\n But there are few lower cost gold operators on the ASX or the world.<\/p>\n We caught up with Perseus Mining MD Jeff Quartermaine to talk costs, M&A and where the next growth leg could be for the African gold standout.<\/p>\n \u00a0<\/p>\n \u201cI think when Perseus was originally conceived the people behind it never really imagined that one day we would be a thriving producer. I think they were mainly focused on exploration in the expectation that if they had an exploration success, then a producing company would come along, take them out, and then they\u2019ll move on to the next thing, which is a model that a lot of people pursue. <\/p>\n \u201cNow, as events turned out, that didn\u2019t occur mainly because the share price ran so strongly in 2010 and I would say that with the benefit of hindsight, we were probably ill equipped to make that transition from exploration, through development into operations. <\/p>\n \u201cVery, very few people actually make it through the gate, as it were, on that journey because it involves quite distinctly different skill sets at each stage. For one reason or another, we managed to make it through the gate and get into production. <\/p>\n \u201cAnd then we had to really consolidate our existence as an operator and focus on the things that would make an operating company successful. So not only do we have to focus in on the operation itself, but look strategically and say well, being a single mine operator in Africa is a fairly risky position to adopt because not only do you have commodity cycles, but you also have political cycles and we will be in a far better position if we could spread our risk over multiple operations in multiple jurisdictions. <\/p>\n \u201cIt did take us a bit of time to get the first operation operating satisfactorily but then once that happened, we were able to move on to develop our second one, which was Sissingue, and then ultimately the third one, which was Yaoure. And of course, we were well on the path to an investment decision on our fourth property, which would be would have been in Sudan, until earlier this year when a war unfortunately broke out in Sudan, which has put those development plans on hold.\u201d <\/p>\n \u00a0<\/p>\n \u201cWe complain about our share price and the like, but we are holding up reasonably well. I think everybody has come off quite some way this year. <\/p>\n \u201cWe had a very, very strong run up a year and a half ago or two years ago, and so it was not surprising that we did settle back a bit. I do think though, that having said that there is some mispricing or what I would call mispricing on our stock. <\/p>\n \u201cThere\u2019s a number of factors around that and it\u2019s not strictly African either. If we look at our portfolio people would say well, yes, they have a long-life asset in Yaoure but the other two assets are not super long life and people would also make the comment that with our average grade at Edikan being a bit over a gram and Sissingue being a bit more and Yaoure being more, it\u2019s not the highest quality asset portfolio in the world. <\/p>\n \u201cRight now, I think the biggest drag on our share price is the fact that the company seems to be regarded as cum-transaction if I can describe it in that way. We\u2019ve accumulated a vast amount of cash as you know over the last year or so. <\/p>\n \u201cIf you add the debt and cash, we\u2019ve got about roughly a billion US dollars available to us to continue the growth of the company. And I do know for a fact that a lot of shareholders are sitting on the sidelines, saying \u2026 we want to see what you do with that cash before we come in boots and all. <\/p>\n \u201cThey want to make sure that we don\u2019t make a bad decision. And I can understand that reticence because it is very easy to do M&A, but it\u2019s very difficult to do really good M&A, and the landscape is littered with transactions that have lost a lot of shareholder value over a period of time.<\/p>\n \u201cBut if we follow our form, they\u2019re going to be very happy with what we do in periods to come and I say that because to date we\u2019ve been quite successful in our M&A transactions. <\/p>\n \u201cIf you look at the three that we\u2019ve done, they\u2019ve all been done well, they\u2019ve been well priced, and have added a lot of value to our company, notwithstanding the Orca transaction, which for the moment is sort of in a bit of an abeyance period, but gold\u2019s not going anywhere. <\/p>\n \u201cAnd over the longer term, that project is going to be an important part of our business. So I think we\u2019ve demonstrated that we have the capacity to transact. And it\u2019s just a case of making sure that when we do hit the go button, that we can do it in a way that will create significant value for shareholders.\u201d<\/p>\n \u00a0<\/p>\n \u201cIt\u2019s safe now, I mean we are in the process of getting everything together and resuming drilling. So we\u2019ve got a team of people on the site at the moment who are working on fixing up the camp and the like ready for the drillers to come back. <\/p>\n \u201cAnd we\u2019ve put in place a bespoke security arrangement. Previously we had a security contractor but as history shows was aligned to one of the combatants, so what we\u2019ve done is we\u2019ve established our own security arrangement including cooperating with the government and the mining police, plus local landowners and our own people. <\/p>\n \u201cSo we\u2019ve put that in place to make sure that both assets and people are safe and our drilling contractor Capital Drilling is extremely keen to get back in and so as soon as everything is ship-shape, we will be back in on the ground drilling holes and expanding that resource. <\/p>\n \u201cSo I do expect that will happen if not later this quarter, then certainly early next quarter.\u201d<\/p>\n \u00a0<\/p>\n \u201cAt the moment we\u2019re focused on Africa. I think looking longer term and we\u2019ve got a strategic planning session coming up, actually next week, where we\u2019ll discuss this sort of thing and say at what point do we start to look further afield from Africa and if we do that where would be comfortable. <\/p>\n \u201cShould we be considering for instance, instead of being a gold pure play, would we be willing to look at polymetallics or have copper in the mix or something like that? <\/p>\n \u201cDepending on those sorts of decisions that could change our focus a little but I would say that operating in multiple timezones is quite challenging for a small company. It\u2019s okay for the very large companies that are very decentralised but for a company of our size operating in multiple timezones would be challenging from a management point of view. <\/p>\n \u201cAnd the other thing to remember is when we go to a new jurisdiction, we will start at the bottom of the heap in terms of knowing how to operate, who to operate with etc., so you don\u2019t take that decision lightly. So that\u2019s a long winded way of saying for the moment we\u2019ll be focusing on Africa.\u201d<\/p>\n \u00a0<\/p>\n \u201cWe\u2019re not restricting ourselves to West Africa as a company, we do want to maintain a level of diversity in the portfolio and having all the eggs in one basket doesn\u2019t make a lot of sense. So, we are considering other places. <\/p>\n \u201cPlaces change and what the situation is that exists today wouldn\u2019t be what will exist tomorrow, and the risk-return thing has to has to come into account here. If you take for instance an asset in Burkina Faso, from all reports and I\u2019m speaking second-hand here, because I\u2019m not an expert on Burkina Faso, but from all reports operating in that country is becoming extremely challenging. <\/p>\n \u201cNow that has the impact of depressing the share price of people who are operating there, particularly if they\u2019re pure plays. But at some point in time, you have to say look, the risk is factored into that price. And you\u2019d have to say, this price even though it is risky, we\u2019re willing to get involved. <\/p>\n \u201cNow I\u2019d say at the moment, that probably isn\u2019t the case in terms of Burkina Faso, but it may well be the case in years to come. And the same can be said of just about every jurisdiction. I have my views around some places where I don\u2019t think I\u2019d ever feel safe there, but at a price, you can make yourself safe. <\/p>\n \u201cSimilarly, there are places in Africa where we would be enormously comfortable, but the return from the mineral wealth isn\u2019t quite what we need. You\u2019ve just got to strike that balance in between risk and return.\u201d<\/p>\n \u00a0<\/p>\n \u201cReally well, actually, at Sissingue we\u2019ve got some pretty good results coming through at the present time. The guys are working on that and we think that will give us a bit of a lift in the mine life but we\u2019ve got to do the homework first. So that is actually quite encouraging for us. We think that more likely than not, there will be several more of those up in that broad area. <\/p>\n \u201cWe\u2019ve got three contiguous exploration licenses that we\u2019ve acquired over the last couple of years up there and we\u2019ve hardly scratched the surface. At Edikan we\u2019ve got a significant tract of land that has been not explored at all by professional explorers and miners. The artisanals have certainly been doing their thing on this land for a period of time, but we haven\u2019t had the opportunity. <\/p>\n \u201cThe very first target we went after on this tract of land, we discovered the (330,000oz reserve) Nkosuo deposit. When I was on the site a month or so ago talking to the team at Edikan as a group we committed to doing all that we needed to do to extend the life for another 10 years. And that\u2019s a very achievable target in our view. <\/p>\n \u201cAnd similarly at Sissingue we collectively set ourselves a target of extending the life for another five years and we\u2019re well on the way to that already, but without doing anything too much special so I think the opportunity to increase the life of existing assets is very good. And so investment in organic growth activities is a priority for us. <\/p>\n \u201cAnd that\u2019s where you actually create the most value because we\u2019ve already invested in the infrastructure so the return on any incremental ounces is very, very high. And so that\u2019s where we\u2019re focusing a lot of attention.\u201d<\/p>\n \u00a0<\/p>\n \u201cI would say we work it very hard. We work very hard at identifying ways of keeping your cost base under control, taking costs out of the business. A lot of people will say, oh you\u2019ve got it easy over there because labour costs are lower. Well I can assure you that labour costs are not lower. <\/p>\n \u201cOne thing that is different between Australia and Africa is that the turnover of staff is a lot lower, because people in Africa if they get a job in the mining industry, they will do everything within their power to keep that job because they are so much better off than most of their country. In Australia, people are pretty easy about whether they work or whether they don\u2019t, there\u2019s been a lot of government largesse over the years and people are fairly casual about coming and going. <\/p>\n \u201cAnd that itself introduces incremental costs because first of all, you\u2019ve got to recruit people, and then you\u2019ve got to train them, etc. Our workforce is probably more stable, but it does not come at a lower cost. In fact, if you look at the numbers of people that we employ, we employ far greater numbers than you do in Australia. <\/p>\n \u201cFull employment is the goal of most host countries and they would much rather have a lot of people employed at slightly lower rates then have a fewer number at higher rates unless of course they\u2019re getting something from it themselves. <\/p>\n \u201cSo it\u2019s not at all correct to say that we have it easy. <\/p>\n \u201cThe other thing I\u2019d point out is that systematically royalty rates in Africa are a lot higher than they are in Australia. And I dare say that in Africa, we also routinely carry a fixed cost for security that you wouldn\u2019t be using in Australia. So there are swings and roundabouts. <\/p>\n \u201cThere are some things that are lower cost or better. There are some things that are not and what you need to do \u2014 doesn\u2019t matter whether you\u2019re working in Australia or Africa \u2014 you\u2019ve got to work really hard, focus on your business, make sure that nothing gets between you and maximising your number of ounces and doing it at the lowest possible cost. That\u2019s what we do.\u201d<\/p>\n \u00a0<\/p>\n \u201cI\u2019ve no better idea than anybody, so it\u2019s just an opinion \u2026 I think it\u2019s pretty hard to imagine with all the turmoil going on in the world that there\u2019s going to be a rapid pullback in the gold price. <\/p>\n \u201cSo I would be expecting that we will see prices at least around current levels for quite a few more years into the future. Now, beyond that who knows what it\u2019s going to do? It could take off big time and I\u2019ve had people making very bold statements around future gold prices, but from our point of view and this sounds a bit trite and I don\u2019t mean it to but we\u2019re a bit agnostic in that regard because we can\u2019t control the gold price. <\/p>\n \u201cWhat we can control is how much gold we make and what cost we make it at and if we can keep our costs down, then we will stay in business when a lot of people won\u2019t. <\/p>\n \u201cAnd if you look in the last 12 months, our cost structure was one of the best in the world actually, I think it\u2019s certainly in the bottom 5% and there are a lot of people who were seriously bleeding cash. And that was even at US$1900 an ounce. <\/p>\n \u201cIf the gold price was to fall from here, there\u2019s going to be a lot of pain I think in the industry. And that says to us, you better make sure if that happens, you\u2019re well prepared for it by having your cost structure in order.\u201d<\/p>\n \u00a0<\/p>\n \u201cNot particularly. We\u2019re running around the 500,000-odd ounces now and we can maintain that out towards the end of the decade. If we did do M&A arguably you\u2019d be adding a couple hundred thousand ounces on because that\u2019s the sort of scale that we\u2019d be looking at. <\/p>\n \u201cBut one of the challenges of doing that is you\u2019ve got to replace it, the reserves and resources are consumed every year. <\/p>\n \u201cYou go to a million ounces, you\u2019ve got to replace 1Moz every year if you want to be a sustainable business. And that is a challenge. <\/p>\n \u201cSo the idea of growing rapidly is fine for the short term, but how are you going to maintain that into the future is another matter altogether. <\/p>\n \u201cOur approach is probably to \u2026 steadily increase and to make sure that every year we add back on to the inventory at least what we take off. I think last year for instance, we actually added more on than we had in previous years. <\/p>\n \u201cBut that has been the mantra for the last four or five years, make sure that whatever we deplete, we add back on through organic growth and that will be our focus going forward. It will be something that will probably moderate the pace at which we do grow. <\/p>\n \u201cSomeone asked us once \u2018do you want to be the tortoise or the hare?\u2019 We said we want to be a fast tortoise, and that\u2019s pretty much right I think.\u201d<\/p>\n \u00a0<\/p>\n <\/span>\u00a0 The post Q+A: Perseus Mining\u2019s Jeff Quartermaine on why the $2.5bn African gold miner aims to be a \u2018fast tortoise\u2019<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"You took over as CEO in early 2013 and just after that the stock fell into the low 20 cent range. In terms of the journey that you took to bring that back and turn it into one of Australia\u2019s largest gold miners, what did you think was the key aspect there?<\/h2>\n
You were on a big upward trajectory until the last couple of years despite producing more gold than ever. Your share price has come off a long way. Do you think that\u2019s sort of an element of mispricing in the market or is there something that you feel that the markets missed?<\/h2>\n
Do you have a line of sight as to when it will be safe to restart exploration and resource drilling at Meyas Sand?<\/h2>\n
So when it comes to M&A, is it Africa specifically that you\u2019re still looking for the next deal? Or is there a chance that you\u2019d look to diversify elsewhere?<\/h2>\n
What do you make of the opportunities on offer when you speak about M&A in Africa. I imagine that West Africa would be sort of ideal for you. Are there opportunities there at the right price at the moment?<\/h2>\n
You spoke about Yaoure, you just had the big life extension there out to 2035. How are you going in terms of finding opportunities to extend the mine life at Edikan and Sissingue as well?<\/h2>\n
I\u2019m keen to look at as well the all in sustaining cost side of things, because a lot of the companies in Australia in particular have been dealing with pretty severe inflation on that front. You\u2019re still seeing costs of sort of under US$1,000\/oz. Is there something specific about the deposits there that has helped to do that, the operating environment, the cost of labour, or is it something more specific as to how they\u2019ve been managed?<\/h2>\n
You mentioned gold\u2019s not going away. I know there\u2019s been a little bit of pessimism around investing in gold stocks and stocks that are operating in battery metals have taken a lot more focus from investors and media. Where do you see the long term support for gold prices and gold as a commodity of interest?<\/h2>\n
Do you have a target about how big you want to get from a production perspective?<\/h2>\n
Perseus Mining (ASX:PRU) share price today<\/h2>\n\n
\n<\/span><\/p>\n