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Mining
Perseus Mining (ASX:PRU) is the first major gold miner out with its official numbers for the March quarter.
And the word from management is they want more African operations, even as security concerns emerge after civil war broke out in the Sudanese capital of Khartoum, around 1000km from its Meyas Sand gold project near the Egyptian border.
The move to acquire the former Block 14 project last year is a step away from West Africa into uncharted and potentially treacherous territory for an ASX gold miner. An investment decision was expected later this year for the 500,000ozpa gold miner, one which will obviously now have to take security and geopolitics into consideration.
The popular west of the continent has been a land of opportunity for Perseus, one of the best performing gold miners on the ASX in recent years.
It delivered 130,275oz of gold at all in sustaining costs of US$971/oz in the March quarter, taking FY23 output to date to 398,645oz at US$943/oz.
PRU is operated with a cash margin of US$850/oz in the term. If it can keep costs under control, those should grow in the months to come.
It has 24% of production hedged over the next three years at a weighted average price of US$1968/oz. The rest will be sold on spot, currently over US$2000/oz and looking strong amid signs of economic weakness in the US and Europe.
Perseus managing director Jeff Quartermaine said the company is not in a position yet to make a call on whether the timeline on its Meyas Sand project, where it has spent around US$25m to date on pre-development work, will be put out by the civil disturbance and bloodshed in Khartoum, where some of its administrative staff are sheltering from the violence.
He did note, however, that conditions like those currently seen in Sudan are not always permanent. Cote d’Ivoire, where Perseus’ Sissingue and Yaoure mines are based, was in a state of civil war not long ago.
“Cote d’Ivoire is going exceptionally well right now. Ten years ago, Cote d’Ivoire had a civil war,” he told analysts and investors on a results webinar today.
“And I dare say that the trajectory that Sudan has been on very recently will continue once this current dispute is resolved in some way or another.
“We’re pushing ahead with our work, and we’ll make sensible decisions along the way and risk weight decisions.
“Clearly if we believe the risk to our investment is unacceptable we won’t be putting further money in there. But, at the present time, we’re not in a position to make that call.”
Perseus finished the quarter with US$471m in the bank, a US$66m increase in cash and bullion over the past three months, and recently upsized a corporate credit facility to US$300m to provide liquidity for future M & A.
Asked about the impact of inflation and costs on its operations, Quartermaine said investors regularly told him West Africa was preferable to Australia at the moment.
“Just as a very general statement, and this is people have said to me in recent times ‘oh well, you know, you’re better off in West Africa than in Australia’, which is an interesting statement given what people have said to us in the past,” he said.
“But I would point out that in Africa … we do pay higher royalties than in Australia and our costs are also inflated by the fact that we spend money on security and clearly events in Sudan this week have justified that expenditure.
“And we also employ a lot of people on the site, probably far more than would be employed on a equivalent size property in Australia.
“Which means that by our location, there are incremental costs that aren’t experienced elsewhere, which means that we as a business have to be more efficient in the way we run our business in order to be able to offset those and compete with our international peers.
“As it happens at the present time, our costs are below those of our international peers, which means that he must be doing something right in terms of running our business because we do have a few incremental costs that come along associated with our geographic location.”
While organic growth may provide the best opportunities right now, he said Perseus was looking squarely at Africa if it heads down the inorganic growth path.
“In terms of the question about West Africa, no, I think Perseus has shifted its orientation to pan-Africa,” Quartermaine said.
“And I think the concept of having a diversified asset portfolio … the value of that diversity is very evident for all to see. So we’re not going to restrict ourselves to West Africa.
“We are however restricting ourselves to the African continent. And our decision around acquisitions is going to be based simply on a risk-return basis.
“So if the prize is worthwhile having and there involves some slightly elevated risk then we’re prepared to make that judgment call to invest along those lines.
“Yes, we are considering M & A. It is not in West Africa specifically. However, if we have opportunities in West Africa we most certainly would be interested in investing there because we know the area fairly well and have operated there before, so have some competitive advantage in it.”
Nickel prices surged 3.8% overnight, leading a rally across base metals, PGEs and iron ore that helped lift the ASX materials sector more than 1% this morning.
The catalyst appears to be China’s strong economic data yesterday, with first quarter GDP up 4.5% and the manufacturing PMI for February up to 52.6 to hit an 11-year high. Anything over 50 is growth.
Property sales also rose 7.1% in the first quarter, with steel output up 6.9% year on year in March to 95.3Mt, fitting with MySteel data that blast furnace capacity utilisation has risen for 14 weeks straight in China.
Nickel hit US$25,633/t with palladium up 3.4% to US$1613/oz and platinum 2.9% higher to US$1082.70/oz, zinc lifting 1.4% to U$2871/t, copper up 0.5% to US$9013/t and iron ore 1.6% better off at US$118.60/t.
Buying in iron ore stocks was strong ahead of quarter reports, with Rio Tinto (ASX:RIO) first cab off the rank tomorrow, while the big lithium miners and South32 (ASX:S32) all found support from investors.
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