ASX:PRU
Perseus Mining Ltd
Investment Summary
The fund managers believe that Perseus Mining Ltd holds significant potential as a solid performer within the gold sector. In their opinion, the recent 21% increase in gold prices against the USD and 23.5% against the AUD is driven by strong central bank buying, further solidifying Perseus’ position as it operates in a less price-sensitive environment. They express confidence in MD Jeff Quartermaine's experience and strategic execution of growth projects, especially with diversification into three operating mines across Cote D’Ivoire and Ghana, and upcoming expansions in Nyanzaga and Bankan. While acknowledging concerns over political volatility in Africa, the fund managers emphasize the importance of Quartermaine’s leadership and the potential Saudi JV to enhance regional relations. Financially, Perseus trades at a forward P/E of ~7x earnings and has a strong cash position, enabling funding for growth while maintaining a 12% free cash flow. The recent A$100m buyback program and dividend initiatives boost investor confidence, although future developments like the Meyas Sand project in Sudan remain speculative but potentially lucrative.
Commentary From The Managers
Cerutty Macro Fund
31 Aug 2024
$2.51
- Cerutty Macro Fund highlights strong performance of gold YTD, up 21% against USD and 23.5% against AUD.
- Gold has broken multiple correlations, reaching new highs despite rising yields in early 2024.
- Strong central bank buying is a key factor, aiming to increase gold in reserves amidst distrust of the U.S.
- Countries like Poland are increasing gold reserves from 15% to 20%.
- Cerutty Macro Fund maintains a position in a basket of gold stocks, including Perseus Mining.
- Perseus Mining shows potential with management under Jeff Quartermaine executing growth projects and improving capital return policies.
- Concerns over political risk in Africa are noted, yet Cerutty Macro Fund is confident in Perseus due to:
- Jeff Quartermaine's extensive operating experience in Africa.
- Diversification of assets across two (and soon three) countries.
- Potential benefits from a Saudi JV improving regional relations.
- Perseus Mining operates three mines: two in Cote D’Ivoire and one in Ghana.
- Trading at ~7x earnings and 3.3x EV/EBITDA, with net cash and bullion of US$587m (June 30, 2024).
- Perseus has multiple growth projects aiming for >15% increase in annual ounces by FY28.
- Current gold prices enable funding for growth projects and capital returns, yielding 12% FCF over the period.
- Management announced a A$100m buyback program, contributing to a ~5% yield for FY24.
- Future potential for the Meyas Sand project in Sudan noted, despite market attributing zero value due to regional instability.
- Cerutty Macro Fund views Meyas Sand as a high-risk, high-reward option with NPV of ~US$1 billion.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.