Company Overview: 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. The company’s 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. The company also operates Sissingué gold mine and Yaouré gold mine, both located in Côte d’Ivoire.

PRU Details

Top-line Growth Backed by Geopolitically Diverse Portfolio: 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). As of 9 February 2021, the company’s market capitalisation stood at ~$1.44 billion. PRU is focused on unlocking value by efficiently and effectively converting mineral resources into producing gold mines. PRU aims to have a geopolitically diverse portfolio of mineral resources by acquiring and replenishing through organic or inorganic means. Over the period of 2016 - 2020, the company’s top-line has grown at a CAGR of 24.0%.

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Currently, the company is focused on replacing mining depletion through organic growth opportunities. It plans to further increase its Mineral Resources and Ore Reserves from near mine deposits that are currently the subject of exploration and or feasibility studies. The company’s medium to long-term growth strategy is focused on identifying new exploration opportunities in Ghana and Côte d’Ivoire, as well as elsewhere in West Africa and potentially beyond. With the successful development and ramp up of its third gold mine, Yaouré, PRU seems well placed to achieve its goal of producing more than 500,000 ounces of gold per year at a 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, including Edikan gold production of 171,638 ounces at AISC US$1,082 per ounce and Sissingué gold production of 86,001 ounces at AISC US$753 per ounce. Over the year, the company sold 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. During FY20, the company made significant progress in the development of its third gold mine, Yaouré, and continued to produce gold from its two West African mines, demonstrating the success of its corporate plan to transform into a 500,000 ounce per annum, US$400/oz margin gold producer. The company reported total EBITDA of A$273.8 million, up 67% on the previous year, reflecting PRU’s long-term strategy in action. Further, net cash flows from operations stood at A$212.8 million in FY20, up 41% on the previous year.

FY20 Operational Highlights (Source: Company Reports)

Key Metrics: Over the last one year, the company has reported decent improvement in margin performance. EBITDA margin for FY20 stood at 43.0% in FY20, higher than 29.5% reported in FY19. Net margin for FY20 stood at 15.9%, higher than 1.5% in FY19. Current ratio for FY20 stood at 3.3x, higher than 3.13x in FY19, demonstrating that the company has improved its ability to pay short-term obligations.

Past 5-year Financial Performance for Year Ending 30 June 2020

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 36.09% of the total shareholding while the top four constitutes the maximum holding. Van Eck Associates Corporation and The Vanguard Group, Inc. are holding a maximum stake in the company at 11.02% and 4.83%, respectively, as also highlighted in the chart below:

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

December 2020 Quarter Highlights: During the December 2020 quarter, the company produced a combined total of 68,614 ounces of gold, in-line with the 68,772 ounces produced in the prior quarter. Due to the costs associated with measures to ensure business continuity during the COVID-19 crisis, the company’s AISC grew by 7% QoQ to US$1,036 per ounce of gold. Over the quarter, the company sold 66,644 ounces of gold, up 10% on the previous quarter at a weighted average realised gold price of US$1,687 per ounce, generating quarterly cashflows from operations of US$44.6 million. For H1FY21, the notional cashflow from Group operations stood at US$88.3 million, up 39% on June 2020 Half Year, due to an 8% increase in the realised gold price and 12% higher period on period gold production. The company ended the quarter with a cash and bullion on hand of US$118.1 million and net debt of US$11.9 million.

Production Summary (Source: Company Reports)

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 Perseus’ 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.

Key Risks: As a Western African focused gold producer, the company is exposed to the risk associated with the change of law or policy in the jurisdiction. 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.

Outlook: During the first half of FY21, the company produced 137,386 ounces of gold, up 12% on the previous half-year, and close to the top end of the production guidance range of 125,500 - 139,000 ounces. In the second half of FY21, the company expects its gold production to be between 175,000 to 190,000 ounces at an AISC of US$950 to US$1,150 per ounce. With the commissioning and progressive ramp up of its third gold mine, Yaouré, the company is now on track to achieve its goal of producing more than 500,000 ounces of gold per year by 2022. The company expects to further optimise the production at both Edikan and Sissingué with continuous improvement initiatives aimed at increasing gold production and reducing its AISC.

Currently, the company is investigating organic growth opportunities at existing licence areas, particularly at Bagoé near Sissingué and on the Yaouré mining lease. These opportunities are expected to deliver incremental growth in Mineral Resources and Ore Reserves. The company is also focused on identifying new exploration opportunities in Ghana and Côte d’Ivoire, as well as elsewhere in West Africa and potentially beyond.

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

Data Source: Refinitiv, Thomson Reuters, 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: Over the last six months, the stock of PRU has corrected by 16.94%. The stock has a 52-weeks low and high of $0.630 and $1.660, respectively. On the technical analysis front, the stock has a support level of ~A$1.142 and a resistance of ~A$1.42. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company might trade at a premium as compared to its peer average EV/Sales (NTM Trading multiple), considering the company’s geopolitically diverse portfolio, improved gold price scenario, and positive outlook. We have taken peers like Evolution Mining Ltd (ASX: EVN), Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM), etc. Considering the company’s improving top-line and bottom-line, decent performance in H1FY21, continued focus on organic growth opportunities, outlook, and valuation, we give a “Buy” recommendation on the stock at the current market price of A$1.225, up by 3.813% on 9 February 2021.

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

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