Gold output picks up at Perseus’ Edikan mine

Perseus Mining (TSX: PRU; ASX: PRU) is cleaning up its act, and has at least one analyst taking notice.

The dual-listed miner has boosted year-over-year gold production by 22% and reduced all-in site costs by 29% for the third quarter. Perseus churned out 51,529 oz. at all-in site costs of US$959 per oz. from Edikan, its sole gold mine in Ghana.

This is an improvement over the June quarter, where Edikan generated 42,543 oz. gold at all-in site costs of US$1,324 per oz.

The better results are largely due to higher throughput and availability at the mill, which has undergone modifications. During the quarter the plant processed 1.8 million tonnes — up 17% from the previous quarter.

“Getting the house in order has been no easy task,” the company’s CEO Jeff Quartermaine said on a conference call.

The quarterly improvement is a function of better productivity at the Edikan mine, he explains. “The real story lies in the fact that in this quarter we did not have much in the way of unplanned stoppages, and power has been more reliable than it has been in previous periods.”

Availability at the semi-autogenous grinding mill rose to 86% from 79% in the previous quarter, when a fire and substation failure hindered operations.

The average grade was 1.05 grams gold per tonne with an 87% gold recovery, a slight increase from the June quarter.

“This is a story that has long been forgotten by the North American investor given operational challenges or disappointments in past years. However, with these September 2014 results, we believe investors should put this story back on their radar screen,” CIBC analyst Cosmos Chiu writes in a client note.

“Why? We believe the September 2014 operational results might represent a turning point for the company, signifying that past efforts to ‘fix’ the mill are now bearing fruit,” he explains.

Along with better mill performance, sales grew 8% quarter-over-quarter to 49,703 oz. gold at an average sales price of US$1,330 oz. Of those sales, 36,000 oz. were sold in forward contracts at an average price of US$1,303 per oz., while the remaining sales were made at prevailing spot prices.

The debt-free company benefited from a higher average sales price compared to the gold spot price during the same period because of its hedge book.

At the end of September, the company’s hedge position was 89,000 oz. deliverable up to Dec. 31, 2015, at a weighted average price of US$1,535 per oz. It intends to deliver 19,000 oz. priced at US$1,296 per oz. by year-end, followed by 70,000 oz. at US$1,600 per oz. in 2015. Next year’s sales will occur in quarterly installments.

“More importantly, the company was able to generate cash during the quarter,” Chiu says. Perseus increased its cash and equivalents position by $4.5 million quarter-over-quarter to $53.2 million, which includes $44.3-million cash and $8.9 million in bullion.

It has another $10 million of cash on deposit in escrow accounts. It also has a US$14.6-million value-added tax receivable outstanding from the Ghanaian government.  

Perseus remains on track to achieve both its production and cost guidance for the six months ended Dec. 31, 2014, of 95,000 to 105,000 oz. gold at US$1,160 to US$1,280 per oz.

It recently traded at 37.5¢, within a 52-week range of 20.5¢ to 65¢. It has a $197.5-million market capitalization.

Chiu has a 50¢ price target and rates the stock as a “sector performer.”