Perseus puts out fireat Edikan in Ghana

A fire has put operations on hold at Perseus Mining’s (TSX: PRU; US-OTC: PMNXF) Edikan processing gold plant in Ghana, but the company says things are under control.

The fire occurred during a planned maintenance shutdown and was put out within an hour. The company says there were no injuries and no environmental damage, but some of its equipment was damaged.

The area was most affected where the plant’s cyclones operate, and Perseus says one cyclone as well as some rubber-lined pipes that house electrical cabling and air lines are damaged. The repairs and the approvals to restart operations should be in place within seven days, it says, but investigations are ongoing.

BMO Capital Markets analyst Andrew Breichmanas likened the fire to ones suffered at Osisko Mining’s (TSX: OSK; US-OTC: OSKFF) Canadian Malartic plant and Randgold Resources’ (LSE: RRS; NASDAQ: GOLD) Tongon mine in 2012. If these comparisons are accurate it would bode well for Perseus, as operations were back to normal within a few weeks, and the companies’ shares didn’t underperform their peers while the repairs were made.

Breichmanas notes that Perseus has a spare cyclone on-site for just such an emergency, and the classification system can be operated manually if its control instruments need repairs.

His confidence that the company will recover is based on reports that representatives of the Ghana Minerals Commission have already authorized maintenance. 

“The Edikan operating team has previously demonstrated ability to enact equipment modifications in a timely manner,” he wrote in his report, “with primary crusher mechanical issues addressed in early 2013, after which the mine has been delivering consistent quarter-on-quarter improvements.”

And while the fire may have a modest impact on production, Breichmanas says the recently completed $33-million institutional placement gives it a cash cushion for repairs without impacting its longer-term improvement plans.

The company said that $15 million of new capital would accelerate productivity improvements at the site that would bolster production and lower costs. The other $15 million was earmarked for greater balance-sheet flexibility and working capital.

Edikan went into commercial production in 2012, and the company expects to produce 200,000 oz. gold this year at a 1-gram-per-tonne head grade.

Breichmanas rates the stock as a “market perform,” with a 51¢ target price. On April 10, the day after the fire, the company’s stock was off 1% to 43¢, on 475,000 shares traded.