Perseus pours first gold

Perth, Australia-based Perseus Mining (PRU-T, PRU-A) has started producing gold from its Central Ashanti gold project in Ghana’s renowned Ashanti gold belt.

After ramping up to full production, the company plans to produce 265,000 oz. gold per year starting in 2012. Operating costs are expected at US$500 per oz. gold.

In late August, the company poured the first 94 oz. gold from the processing plant in a trial pour. Perseus says the mill’s early commissioning is progressing well and the operation is on track to begin commercial production in three months.

Ramp-up of mining activities is also on schedule. Pre-stripping is largely complete and some 700,000 tonnes of ore have already been stockpiled. Average throughput at the mine is expected at 7.9 million tonnes per year, or 21,500 tonnes per day, once it reaches nameplate capacity.

Central Ashanti is the company’s first project to reach production. Construction began in June 2010 at a cost of US$175 million, financed through a 3-for-1 mix of equity to debt. Perseus is initially using an Australian mining contractor employing 308 people at the site, while hiring people to build up its own operations team. So far it has filled 51 management positions and 143 operational positions. 

The Central Ashanti gold project, dubbed “CAGP” internally, and formerly referred to as the Ayanfuri gold project, last saw production from 1994 to 2001, when AngloGold Ashanti (AU-N) ran a small heap-leach operation before the gold price fell and the project became uneconomic. AngloGold mined over 300,000 oz. gold from 23 shallow oxide open pits. 

Perseus picked up the decommissioned project in 2006 when gold prices rose, drilling off the project to make new discoveries and build up reserves.

Perseus describes gold mineralization at CAGP as occurring principally in granitic bodies and classic “Ashanti-style” sediment-hosted shear zones. The granite-hosted gold mineralization is free-milling and occurs in abundant, narrow-quartz veins. 

Years of successful drilling campaigns have increased the project’s gold resource from less than 1 million oz. in 2006 to just over 9 million oz. across all categories. As of December 2010, proven and probable reserves at CAGP totalled 86.9 million tonnes grading 1.2 grams gold per tonne for 3.27 million contained oz. gold, at a cut-off grade of 0.4 gram gold. 

Measured, indicated and inferred resources are grouped into two different categories based on grade. A higher-grade section of the deposit has measured and indicated resources of 71.2 million tonnes grading 1.4 grams gold for 3.3 million contained oz. gold, as well as 24.4 million inferred tonnes at 1.5 grams gold for another 1.14 million contained oz. gold, all at a cut-off grade of 0.8 gram gold. A lower-grade section using a cut-off grade ranging from 0.4 to 0.8 gram gold has measured and indicated resources of 47.1 million tonnes of 0.7 gram gold for 1 million contained oz. gold, as well as 25 million inferred tonnes at the same grade for 538,000 contained oz. gold.

This sizable resource stands to increase even further once the past year’s drilling is factored in. Perseus expects to release its next resource update toward the end of this year. It has eight drills turning on the project to complete a planned 150,000 metres in 2011. The company’s stated goal is to add 500,000 oz. gold reserves each year, as well as make at least one new discovery per drill season.

Perseus is also working to expand the resource at its advanced-stage Tengrela gold project in neighbouring Côte d’Ivoire. The company has already defined a resource of 1.87 million oz. gold across all categories, but has five drill rigs operating at the site to increase this. Roughly 200,000 metres of drilling are planned.

In November 2010, political violence in the normally peaceful country brought exploration to a standstill for six months. Now, Perseus is back on the ground at Tengrela to improve the project’s economics and estimated mine life.

The company completed a positive feasibility study for Tengrela’s main Sissingue deposit late last year that showed the project could produce 175,000 oz. gold per year over a six-year mine life. Cash costs are expected to run similar to Perseus’ Central Ashanti operation at US$500 per oz. gold produced, with an estimated start-up capital cost of US$109 million.

The company’s strong project portfolio has led a few analysts to call it an obvious takeover target for a senior gold producer. A recent Financial Post article quoted Middlefield Capital manager Dennis da Silva as saying Perseus would be a good fit for a company such as Iamgold (IMG-T, IAG-N).

With plenty of cash in the bank, record-high gold prices and a beachhead in West Africa in the form of its Essakane gold mine in Burkina Faso, da Silva said Iamgold might already have its eye on Perseus, a potential 400,000-oz.-per-year producer in the next two or three years. 

After raising $165 million in equity in 2010 to build Central Ashanti, Perseus is left with 425 million shares outstanding and a market cap of $1.4 billion. Its shares closed at $3.37 on Aug. 24, at the higher end of a 52-week share price range of $2.37-$3.89.