Perseus Mining (ASX:PRU): This successful Africa-focused gold miner is expanding its portfolio into Tanzania

Nick Sundich Nick Sundich, March 27, 2024

Perseus Mining (ASX:PRU) is one of the ASX’s under the radar gold stocks. This is not just because it has gained over 350% in 5 years, but also because it is one of the few to have thrived in Africa. In fact, the company is the 4th largest pure-play gold miner behind Newmont, Northern Star and Evolution.

This said, it trades at a big discount to the above 3 companies despite generating 9-figure profits and not suffering cost inflation and profit downgrades in the same way that companies with projects closer to home have.

 

Perseus Mining (ASX:PRU) share price chart, log scale (Source: TradingView)

 

Introduction to Perseus Mining and its projects

Perseus has 3 projects. The Edikan mine in Ghana as well as the Sissingue and Yaoure mines in Cote d’Ivoire. Twenty years ago, it was another small cap explorer but by 2012 had successfully bought the Edikan Gold Mine into development. Sissingue and Yaoure were bought into production in 2018 and 2021 respectively.

In 2022, it acquired the Meyas Sand Gold project in Sudan and seems all but certain to pick up the Nyanzaga project in Tanzania. But more on the latter project shortly.

 

Perseus Mining projects (Source: Company)

 

These assets produced over 500,000/oz in CY23 with an AISC of under US$1,000 and average sale price of US$1,913/oz. Perseus holds US$642m in net cash. It recorded just over $1bn in revenue, up 16%, and a US$349.3m profit, up 41%. Despite forecasting a slight rise in costs, it is still anticipating ~500k ounces of production in CY24. Its total ore reserves are 3.4m ounces of gold.

Edikan and Sissingue may be soon to pass their use by dates with Edikan only scheduled to operate until FY27 and Sissingue set earlier than that, although it is anticipated that the company may be able to extend its life by processing material from satellite deposits. Yaoure is easily Perseus’ most important for now, producing nearly 275,000oz gold at an AISC of US$755/oz and set to operate until at least 2035. Again, this could be extended if further gold is discovered at nearby deposits.

The company is hedging its bets, however. It picked up the Meyas Sand Gold project in northern Sudan in May 2022. Government support was not a problem, nor was the lack of a resource with 3.3m/oz in Measured and Indicated Resources. But the civil war there means it won’t be going anywhere with it anytime soon.

 

Meet the Nyanzaga project

For several months, Perseus has been trying to buy the Nyanzaga project in Tanzania. It was owned by OreCorp that had spent seven months backing a rival bid from Canada’s Silvercorp Metals. Perseus ended up winning out after increasing its bid and securing Tanzanian government approval. The bid was 57.5c per OreCorp share, or $269.9m all up.

The mine is expected to be in operation in the 2nd half of CY25 and produce 250koz over 8 years. There’s a capex bill of US$474m but a 2.6Moz resource, an NPV (using a discount rate of 5%) of US$926m and IRR of 31%. The AISC is US$954/oz. These estimates were from two years ago when gold prices were lower.

 

Substantial upside to the share price

We have modelled Nyanzaga and found an NPV of $1.4bn or A$0.97 per share. We value the other projects at A$2.6bn or $1.75 per share, leading to a total value of $4bn or $2.72 per share, a 33% premium to the current share price.

We’ve also looked at Perseus on an EV/Resource basis. Taking into account a Mineral Resource of 8.5Moz across the 3 legacy projects and an Enterprise Value of $2.1bn, it is currently A$0.25. Its peers trade at an average of A$0.44 per share, and this would derive an EV of $3.7bn, or $2.73 per share. If you take into account Nyanzaga, it gets better – to an EV of $4.9bn or $3.34 per share.

Obviously, if any mines’ lives were extended, if its Sudanese project came online or if Perseus bought more projects, this could increase. PRU still has a war-chest of well over $400m and has no debt, although it may need to take some onboard to develop Nyanzaga.

 

Perseus is not one for dividends, but a solid stock for growth

One downside with this stock is that it is a low dividend payer. Generally aims for at least 1% yield, which isn’t much for an ASX company, especially one with a desired yield inked in. As disappointed as income-oriented investors may not be, growth-oriented investors would not be disappointed and may not be as content had the company distributed its profits rather than reinvested it into new projects.

As we noted above, it trades at a big discount to peers like Northern Star despite generating 9-figure profits all the same. You could argue it deserves a discount for Africa, although Ghana and Cote d’Ivoire are low-risk and Tanzania is less of a sovereign risk than a few years ago. Furthermore, it has not suffered cost inflation and profit downgrades in the same way that companies with projects closer to home have.

 

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