Company Overview: Perseus Mining Limited (ASX: PRU) is a multi-jurisdiction gold producer that owns and operates three gold mines (Edikan, Sissingué and Yaouré) in two West African countries (Ghana and Côte d’Ivoire). Edikan gold mine is located in Ghana, and it achieved commercial production in 2012. Edikan has a Mineral Resources of 3.0 million ounces including 1.61 million ounces of Ore Reserves with a grade of 1.10g/t Au. Both Sissingué gold mine and Yaouré gold mine are located in Côte d’Ivoire.

PRU Details

Growth Backed by Geopolitically Diverse Portfolio: Perseus Mining Limited (ASX: PRU) is a metal and mining company, primarily involved in gold production, mineral exploration and gold project development in the Republic of Côte d’Ivoire and Republic of Ghana, both located in West Africa. As of 5 January 2021, the company’s market capitalisation stood at ~$1.64 billion. PRU is focused on unlocking value by efficiently and effectively converting mineral resources into producing gold mines. The company owns and operates three gold mines, namely Edikan, Sissingué and Yaouré. The company’s strategy is to consistently perform, plan and generate targeted returns on funds employed. PRU aims to have a geopolitically diverse portfolio of mineral resources by acquiring and replenishing through organic or inorganic means.

Over the last five years, the company has witnessed significant improvement in its bottom-line, rising from a net loss of $37.54 million in 2016 to a net profit of $94.4 million in 2020.

Net Profit Trend During 2016-2020 (Source: Company Reports)

Currently, the company’s major focus is on commissioning and ramp-up of production at Yaouré gold mine. PRU has already poured first gold at Yaouré and is now planning to satisfy continuous performance tests by positioning itself to declare commercial production. At its Edikan and Sissingué gold mines, the company intends to implement improvement initiatives that are aimed at increasing gold production and reducing AISC. PRU is on track to achieve its target of producing at least 500,000 ounces of gold per year at a cash margin of not less than US$400 per ounce.

FY20 Performance Highlights: For the year ended 30 June 2020 (FY20), PRU reported total gold production of 257,639 ounces at an AISC of US$972 per ounce. The company reported a total EBITDA of A$273.8 million, up 67% on the previous year, reflecting PRU’s long term strategy in action. The company’s total gold sales stood at 272,778 ounces at a weighted average sale price of US$1,457 per ounce, resulting in a cash margin of US$485 per ounce. Further, net cash flows from operations stood at A$212.8 million in FY20, up 41% on the previous year. As at 30 June 2020, the company had cash and bullion on hand of $237.5 million, up 41% on the previous year.

FY20 Operational Highlights (Source: Company Reports)

September 2020 Quarter Highlights: During the September 2020 quarter (Q1FY21), the company’s two operating gold mines, namely Edikan in Ghana and Sissingué in Côte d’Ivoire, performed decently and produced a combined total of 68,772 ounces of gold, up 6% on the prior quarter. Over the quarter, the company sold 60,441 ounces of gold at an average sales price of US$1,595/ounce. During the quarter, the company made significant progress in the development of its Yaouré Gold Project in Côte d’Ivoire. At the end of September quarter, the company had cash and bullion of US$147.4 million, down by US$16.2 million on the previous quarter.

September Quarter Performance (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 36.08%.  Van Eck Associates Corporation and The Vanguard Group, Inc. hold the maximum interest in the company at 11.02% and 4.83%, respectively.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: For FY20, the company’s net margin stood at 15.9%, higher than the industry median of 6.9%. Current ratio for FY20 stood at 3.30x, higher than the industry median of 1.74x, demonstrating that the company is well equipped to pay its short-term obligations. Debt to equity multiple for FY20 stood at 0.25x.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Acquisition of Bagoé Gold Project: On 29 September 2020, the company announced that it has completed the implementation of the Scheme of Arrangement with Exore Resources Limited. PRU has acquired all of Exore’s assets, including a portfolio of exploration properties situated in northern Côte d’Ivoire. The company is now planning to undertake a Definitive Feasibility Study (DFS) to confirm the technical and financial viability of a development concept for Bagoé.

First Gold Poured at Yaouré Gold Mine: On 18 December 2020, the company announced that it has completed the first pour of gold at its third mine, Yaouré Gold Mine in Côte d’Ivoire, five weeks ahead of schedule, in-line with PRU’s “stretch target” of first gold at Yaouré in December 2020. This marks a major achievement in the construction and commissioning of PRU'S third gold mine and demonstrates the skill, resilience and dedication of the company’s in-house development team, technical and commercial support staff, its contractors and consultants. The company expects to declare Commercial Production at Yaouré in March 2021 quarter.

Change of Interests of Substantial Holder: Recently, the company’s substantial holder, Van Eck Associates Corporation, increased its holdings in the company from 9.75% to 11.02%. Van Eck Associates Corporation now holds 135,107,122 ordinary shares of the company.

Key Risks: The company is exposed to the risk related to COVID-19 pandemic and associated impacts. Moreover, the company’s results could also be impacted by the fluctuations in the Gold prices. As a Western African focused gold producer, the company is also exposed to the risk associated with the change of law or policy in the jurisdiction.

Outlook: Looking ahead, the company is focused on further optimising production at both Edikan and Sissingué gold mines via continuous improvement initiatives that are focused on increasing gold production and reducing AISC. The company intends to deliver material organic growth at each of its three operating sites. For the first half of FY21, the company expects its total gold production to be in the range of 139,000-125,500 ounces with average AISC to be between US$940/oz - US$1,025/oz. The company expects Yaouré to produce on average about 215,000oz of gold per year in its first five years of operation at an all-in site cost of $750/oz. PRU plans to organically increase its Ore Reserve inventory through successful near-mine exploration programmes across its three mines. The company is on track to achieve its goal to produce more than 500,000 ounces of gold per year at a cash margin of more than US$400 per ounce.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last one month, the stock of PRU has provided a return of  16.45%. On the technical analysis front, the stock has a support level of ~A$1.116 and a resistance of ~A$1.589. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Evolution Mining Ltd (ASX: EVN), Silver Lake Resources Ltd (ASX: SLR), and Gold Road Resources Ltd (ASX: GOR). Considering the company’s geopolitically diverse portfolio, improved financial performance in FY20, decent production performance in September 2020 quarter, outlook, and valuation, we give a “Buy” recommendation on the stock at the current market price of $1.380, up by 2.985% on 5 January 2021.

PRU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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