Company Overview - Perseus Mining Limited is engaged in mining operations and the sale of gold, mineral exploration and gold project evaluation and development in the Republics of Ghana and Cote d’Ivoire, in West Africa. The Sissingue Gold Project (SGP) is located in the north of Cote d’Ivoire and is situated within an 885 square kilometres land package consisting of the Sissingue exploitation permit area and the adjoining Tengrela South exploration permit area, together referred to as the Tengrela Gold Project. The Edikan Gold Mine (EGM) is located on the Ayanfuri and Nanankaw mining leases spanning the border between the Central and Western Provinces of the Republic of Ghana, in West Africa. These mining leases, together with the adjoining exploration license areas of Grumesa, Kwatechi, Dunkwa, Nsuaem and Nkotumso that are also held by the Company, cover a total area of about 650 square kilometres. The Company owns a 90% interest in the EGM. Perseus Mining Limited (ASX Code: PRU) has forged a reputation as one of the world's most successful gold explorers. Focused on under-explored gold belts in West Africa, they achieved their goal to become a gold producer in 2011 and started commercial production on 1 January 2012.Their Edikan Gold Mine (EGM) in Ghana, formerly referred to as the Central Ashanti Gold Project (CAGP) and Ayanfuri, has 5.7 million ounces of Measured and Indicated gold resources, including reserves of 2.9Moz gold, and 2.4Moz Inferred gold resources. 

Analysis - Perseus has released quarterly and half year production and cost numbers showing encouraging progress at Edikan and a halt in the cash burn rate from the September quarter. Gold production of 48,360oz in the quarter, 6% higher than the previous quarter. For the six months to December 2013 (the “half year”), gold production totalled 94,190oz in line with the production guidance of 91,000oz to 101,000oz for the period. Available cash and bullion on hand was valued at A$28.2Million, during September it was A$27.3 Million.

Total all in site unit costs including production, royalties, development and sustaining capital were US$1,228/oz during the quarter, 8.5% lower than the prior quarter. For the half year all in site unit costs were US$1,283/oz, 2.6% higher than the upper end of cost guidance of US$1,250/oz. Material improvements continued to be achieved during the quarter in the availability and metallurgical performance of the process plant, as well as unit costs of gold production.

With the improved production result in December quarter, Perseus has met its 1H13 gold production guidance of 91-101koz by producing 94.2koz over the half. We note that this guidance was revised down from 99-109koz in the September quarterly release. Full year guidance for FY13 was maintained at 190-200koz. All in site costs of US$1,238/oz for 1HFY13 were slightly higher than the top end guidance, although this was expected given the poor September 2013 quarter.

One of the key concerns that came out of the Perseus’s September quarterly release was the deterioration in its cash position across the quarter which saw its cash and bullion balance fall from A$48.3M in the June quarter to A$27.3Million. Encouragingly the December quarter saw this hold steady at A$28M. On the liquidity front, the December quarter saw further developments . Perseus received bank credit committee approval for terms for a US$25 Million working capital facility. The stability in the cash and bullion balance over the December quarter and new working capital facility provides us with increased confidence that Perseus will not need to turn to equity markets in the current gold price environment.


Source - Thomson Reuters

Price		Price % Change
Close:	0.40 (05-Feb-2014)	3M:	(2.44%)
52 Wk High:	1.97 (11-Feb-2013)	6M:	(29.20%)
52 Wk Low:	0.21 (20-Dec-2013)	1Y:	(79.27%)

PRU has reiterated guidance of 99-109koz for the June half 2014, at an all in cash cost of US$ 1,050 – 1,250/oz. Full year FY14 guidance of 190-210koz at US$1050 – 1,250/oz is unchanged. During the quarter PRU received cash refunds totalling US$2.6 Million from VAT receivables owed to the company by the Ghanaian Government. At the end of 2013, the total receivables were US$39.4 Million. To speed up the return of funds PRU engaged with financial intermediaries to factor a deal in relation to the outstanding amount. These negotiations failed to reach agreed terms that were acceptable to PRU. Since then PRU has mandated a local legal firm to directly deal with the government on PRU’s behalf which has resulted in some positive developments.
The Ghana Revenue Authority has advised in writing their decision to issue GHC60 Millions of treasury credit notes, which effectively cover that part of the obligation that has been formally audited and approved. There is potential for cash component in the final settlement mix. We believe it is unlikely that PRU would receive the full amount in cash and have subsequently ascribed a value of zero to the accrued receivable. However the developments detailed above do indicate that a positive outcome may eventuate via a combination of credit notes and cash.



Gold Chart (Source – Thomson Reuters)

PRU still requires few things to go right to survive. This history of the operation is one of  many negative surprises. The improved but still disappointing December Quarter suggests that while progress is being made, achieving plan remains a challenge. Mining cost declined to US$3.71/t from US$4.16/t, but remains above the US$3.43/t in the plan. Processing cost declined to $10.77/t from $11.16/t but also remained above the $9.14/t in the plan. The company is not generating free cash despite aggressive cost reduction, the benefit of hedging delivering an average gold price above spot and reserves based on gold price of $1200/oz. FY14 guidance remains unchanged and liquidity suggest that if nothing significant goes wrong in the current half, PRU has sufficient liquidity to be self-sustaining and does not need additional headroom from a working capital facility. Any VAT rebate achieved further improves this position.

Management continues to spend very modestly at the Sissingue Gold Project in Cote d’lvoire, but has no capacity or appetite at the current time to move to development. Exploration results remain positive with results accruing from the Mhale project 43km from Sissingue. Subject to success at Mhale, conceptually the future location of a mill could be re optimised to reflect location of future resources and reserves. Given the challenging financial reality we were surprised that the company continues to seek exploration opportunities entering into a new low cost $250,000 farm in with un listed West African Gold Limited in Burkina Faso. This is a high risk speculative gold play. We will be putting a BUY at the current closing price of $0.40.
 

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