Company Overview: Perseus Mining Limited (ASX: PRU) is involved in the mining and exploration of gold. The company operates three gold mines in West Africa, which are Edikan Gold Mine, Sissingué Gold Mine and Yaouré Gold Mine. In addition, the company is also engaged in mineral exploration and evaluation activities in West Africa. The company got listed on ASX on 22 September 2004.

PRU Details

Focus on Acquisition to Aid Inorganic Growth: The company believes that it has a very exciting potential growth opportunity, evident by the recent agreement for the acquisition of 15% interest in a gold developer “Orca Gold Inc” from Resolute Mining Limited. The acquisition is likely to be executed at a price of approximately 44.8 Canadian cents per Orca share, reflecting the 10-day VWAP of Orca on the TSX-V to 28 January 2022. The total consideration worked out to be ~C$17.5 million. The acquisition helps Perseus Mining to build scale in Africa with highly prospective gold assets. Further, the acquisition provides more exploration and drilling opportunities adjacent to its existing assets.

Insights of Q2FY22: During the quarter ended 31 December 2021, the company’s business development activities continued to provide attractive results, which indicates the potential to materially increase its ore reserves inventory as well as extend the economic mine lives of its operations.

• PRU produced 128,378 ounces of gold during the December 2021 quarter, indicating a growth of 14% on a QoQ basis, supported by the decent operational performance at three operating gold mines, Yaouré and Sissingué in Côte d’Ivoire, and Edikan in Ghana.
• The half-year (1HFY22) gold production stood at 241,164 ounces of gold at an average AISC of US$949 per ounce, which was well within the guidance of 225,000 to 255,000 ounces at AISC of US$925-$1,025 per ounce.
• In December 2021 quarter, PRU witnessed a growth of 21% in gold sales to 130,486 ounces on a QoQ basis, and the same experienced an increase of 63% in 1HFY22 (YoY).
• The company recorded a rise of 21% in notional cashflow from operations on a QoQ to US$ 94.0 million and 84% YoY to $275.1 million.
• PRU posted an average quarterly cash margin of US$735 per ounce of gold, which was US$46 more than the September 2021 quarter.
• As on 31 December 2021, the company had strengthened the financial position, evident by the cash and bullion of US$212 million (A$292 million), debt of US$50 million (A$68 million), and net cash of US$162 million (A$269 million).

Gold Production (Source: Analysis by Kalkine Group)

FY21 Summary: During the year ended 30 June 2021, the company recorded decent growth as depicted in the below picture:

Financial Highlights (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 39.77% of the total shareholding, while the top 4 constitute the maximum holding. Van Eck Associates Corporation. and T. Rowe Price Associates, Inc. are holding a maximum stake in the company at 9.67% and 5.94%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During FY21, the company recorded an EBITDA margin of 41.8% as compared to the industry median of 29.5%. On the leverage side, the company recorded a debt-to-equity ratio of 0.13x in FY21 as compared to the industry median of 0.20x.

Margin & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Fluctuation: The company’s operational and financial performance could be impacted by the adverse movement in the prices of gold as it generates a major portion of revenue from the sale of gold.
• Climate Change Risk: PRU’s business could be affected by an extreme change in climate, which could temporarily pause its operations.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company is targeting to achieve the corporate objective of producing over 500,000 ounces of gold at a margin of over US$400 per ounce. In addition, it expects to produce gold in the range of 471,000 to 506,000 ounces at an ASIC of US$932 to US$1,020 per ounce. In addition, the company is planning to pay dividends each year to its shareholders, yielding a return of at least 1% per year in the near future. Looking forward, the company would also be focused on completion of work on licensing the development of the Bagoé deposits and continued production of gold from all three mines. In addition, it will seek organic and inorganic growth via more exploration and drilling adjacent to its existing infrastructure and acquisition opportunities, respectively. The company has scheduled to release 1HFY22 results on 23 February 2022.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PRU has a 52-week low-high level of $1.060-$1.853, respectively. The stock has been corrected by ~4.42% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average P/E multiple, considering the labour shortages and exploration risks on the back of COVID-19 uncertainties. For the purpose of valuation, a few peers like Resolute Mining Ltd (ASX: RSG), Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), and others have been considered. Considering the expected upside in valuation, growing production, rising revenue, focus on acquisitions, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $1.620, as on 22 February 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.

PRU Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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