Standing by and welcome to the Perseus Mining June 2019 quarterly call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jeff Quartermaine, Managing Director and CEO. Please go ahead.
Thank you very much, and welcome to this conference call to discuss our June 2019 quarterly report that we released to the market earlier today. For those of you who've had an opportunity to read the report or have been following the company through our market releases during the quarter, you'd realize it's been yet another very busy period for us at Perseus, and very pleasingly one in which we've delivered on several important undertakings. Firstly, our two mining operations at Edikan and Sissingué continue to perform reasonably strongly and generally in line with our expectations. Once again, we've achieved both production and cost market guidance for the half and full financial year ending 30 June. This is becoming a bit of a habit, but one that we're happy to continue.
For the six months to June 30, we produced 131,269 ounces at an all-in site cost of $919 an ounce. This placed us towards the bottom end of the guided production range of 130,000-150,000, but around the midpoint of the cost guidance range. And a similar result occurred on the full year where we produced 271,824 ounces at $960 all-in. So once again, as I say, we have managed to achieve the guidance that we gave to the market. Now, secondly, during the quarter, we were granted an exploitation permit for the development of Yaouré, our third mine. We put in place the funding that's needed to pay for the project development. Our boards reviewed and signed off on our plans, and development is now underway. So that was a fairly significant milestone.
When developed, Yaouré will be our third operating mine, as I said, and a very important part of our asset portfolio going forward. So its progression into development has propelled us very firmly onto a trajectory to deliver or be producing around 500,000 ounces of gold a year at an all-inside cost of $850 an ounce or so. So it is a major milestone for us. Our third achievement during the quarter is our continued growth in financial strength as demonstrated by the balance sheet, which has continued to improve every day, basically. We're generating significant amounts of net cash from our two operations, about $19 million of notional cash flow for the quarter.
We've paid down our debts, paid down about $13 million during the quarter, and we've received support from our shareholders through the exercising of warrants that matured in April, and that added about $38 million after fees to treasury. Now, all of these things combined mean that even though we've started spending money at Yaouré during the quarter and we spent $12 million at Yaouré, we have cash in bullion on hand at the end of the quarter of $119 million or about 170 million ounces, and that is available to us to fund our growth. In addition to this, we've negotiated, agreed, and signed documentation for a new $150 million revolving line of credit with three international banks, and that'll be used initially to partly finance the development of Yaouré, with the rest of the funding coming from existing cash and future cash flow.
Now, taking all this into account, we have a strong balance sheet, we've got three assets that are performing well, and we're well positioned to continue our growth into the future, and the importance of the timing of all this can't really be underestimated. The global market for U.S. dollar gold has strengthened appreciably in recent months, and I noticed it was up again another $20 or so overnight, and it's showing no signs of abating, which I guess in turn has increased investor interest in gold equities. Now, Perseus's recent performance over the last 10 quarters has not gone unnoticed, and our share price has responded well, making us one of the better performed gold companies among our peers operating in Africa this year.
So all in all, it's been a good quarter for the company, very satisfying from management's point of view as we continue to deliver on our promises, doing what we say we're going to do, and this, of course, is one of the core values of our company. So being able to do that is very pleasing indeed. Now, let's turn to the quarterly report itself and talk in a little bit more detail. So looking first at operations, across both the operations this quarter, we produced a combined total of 64,125 ounces of gold, 42,255 coming from Edikan and 21,570 ounces coming from Sissingué. Now, that's about 5% down on the previous quarter, but it's reasonably in line with our expectations taking into account normal business fluctuations.
If we look at the production over the half-year period, we produced, as I said earlier, a total of 131,269 ounces, 87,235 coming from Edikan and 44,040 from Sissingué. That's about 7% down on the previous half-year, but once again, it's pretty much in line with what we were expecting, and it did place us into the production guidance range. Looking at production in both the quarter and the half-year at Sissingué, we were pretty much on target there, even though for much of the period we processed ore of a lower head grade than we'd planned as we focused on mining waste instead of ore. I'll come back to this in a moment. At Edikan, we did come in a little under the targets that we'd set ourselves in both quarters.
The main reason for this was that with our new mining strategy that we implemented from January this year, we restrict ourselves to mining a single source of ore at any given time. During the last six months, this ore source, this fresh ore source, was the Esuajah North Pit. Now, this ore body varies quite significantly in grade and hardness across the ore body, so to make sure that we achieve targeted throughput rates, we need to blend fresh ore from Esuajah North with softer oxide ore from stockpiles. Now, this has the effect of giving us reasonable throughput rates, which, combined with good run times, got us close to our processed ore targets. Blending, as well as improving throughput, blending fresh ore with oxide ore has two other effects.
One is that it reduces the average head grade of mill feed as our stockpile oxide ore is lower grade than the fresh ore. The other impact is that the oxide ore reduces gold recovery rates, and depending on which stockpile we use, whether it's coming from the old heap leach material or Bokitsi, this has either a higher or a lower recovery. This means that on any given day, to optimize gold production, we need to get the trade-off exactly right between grade, throughput rate, and recovery. And this task is made more complex when the main source of fresh ore varies continuously across the ore body. We are improving at this. We're improving every day. We're getting better at getting that blending right. We've now been employing some new technology and software to help us get the optimization right, and we're experiencing some very encouraging results.
I should say that this month, up to the 15th, we're pretty close to budget, so that's very encouraging. We are expecting better production performance coming from Edikan in coming quarters. If we look at the group all-in site costs, our all-in site cost for the quarter was $989 an ounce, which was 16% higher than the group's reported all-in site cost last quarter. Now, the weighted average cost is based on Edikan costs at $10.90 and Sissingué at $7.93. Now, in terms of the Edikan cost, the thing to note is that Edikan's production was down by about 5% quarter on quarter, so that automatically increased the unit cost. But furthermore, costs this quarter were adjusted after an abnormally low result in March quarter. So we reported about $900 an ounce for Edikan in the March quarter, and that was unusually low for us.
That cost result was brought about by a slow ramp-up in the mining as we switched onto the new mine plan. So the fact that the cost increased this quarter came as no surprise. The thing about Sissingué's cost this quarter, they were also somewhat artificially elevated as we took a decision in early March to change things around a little at Sissingué. As a risk mitigation measure, we decided to bring forward the cutback of the final wall of the stage three pit. Now, as you may recall, last year, West Africa received unusually heavy rain during the wet season, and Sissingué certainly did not escape that. The rainfall at Sissingué was about 50% higher than the 40-year average, and it played havoc with our mining schedules.
It also caused some slumping of interim pit walls, and in our judgment, we thought that it wouldn't be prudent to go into another wet season, risking further damage to those walls or indeed our mining operation. So as a result, we decided to bring forward the cutback of the final pit walls of stage three. Now, this meant that for the last couple of quarters, we've been moving a lot more waste material at Sissingué than originally planned, and this focus on waste movement has meant that access to higher grade ore was temporarily deferred while we did the cutback. Now, this work is just about complete, and we actually started to access the higher grade ore material in June, so that was helpful, and things are looking very good pointing forward at Sissingué.
I should note that before going any further, that even though the grade we processed at Sissingué was down during the period relative to what our original plans had at, production relative to targets was not unduly impacted because of significant overperformance in terms of run time, throughput rates, and recovery. So the plant and the operation itself was running extremely well, and with the slightly reduced grades, it still meant we hit our targets. So that all goes extremely well for the future if we can maintain those run times, throughput rates, and recoveries, and combine that with higher grade. Mind you, that said, we did incur higher costs at Sissingué than we planned, but we do see a sharp decrease coming forward in those costs, and that's very positive. Returning to the June quarter, we sold 60,494 ounces of gold during the quarter.
The price had an average price of $12.89 an ounce, and that led to generating quite significant cash flows at both of the mines. In fact, based on the average gold sale price and our all-in site cost of $989, we generated an average margin of about $300 per ounce. When we multiply that by the number of ounces produced, we generated notional free cash from the operations of around $19 million. Interestingly, 56% of that came from Sissingué and 44% from Edikan. Now, obviously, this cash flow was helpful in terms of strengthening the balance sheet, and as I said also, we did receive about $38 million from the exercise of an underwriting of warrants. Between the two, that was a very material cash inflow for the quarter, which allowed us the ability to pay down debts $13 million, pay corporate costs, exploration, etc., etc.
But at the end of June, as I said earlier, our cash balance stood at around $119 million US dollars, and that was up fairly materially from previous periods. It's, in fact, $38.5 million more cash than we had at the end of March, so that was a good outcome. A further point to note is that our bank debt at the end of June had been decreased to $31.5 million from $44.5 million in the prior period. So at the end of the quarter, our net cash and bullion balance stood at about $88 million, and that's an increase of $51.5 million or 142% during the quarter, and that's a very material increase in our cash position going forward. Now, on the corporate finance front, we were also very busy.
We completed and signed documentation on the revolving line of credit, the cash advance facility that's being provided by Macquarie Bank, Nedbank, and Société Générale. These documents are currently being stamped in Côte d'Ivoire in Ghana, and shortly, the facility will be available for drawing, and we expect that the first draw we make will be for $31.5 million, and that'll occur sometime in the next couple of weeks, and that will basically be used to replace the cash that we've actually spent since the end of the quarter paying down those debt facilities. So actually, as we stand today, our debt balance is at zero, but we will draw down that cash into our treasury in the next couple of weeks. The facilities, as I said, it's a revolving line of credit.
Perseus Mining Limited, the parent entity, is the main borrower, but the operating subsidiaries are also listed as borrowers. The terms that we've got on the credit facility are fairly typical of this sort of thing. Interest payable is LIBOR plus a margin of 4.25%, and going forward, that margin will vary in line with the company's leverage ratio. So taking into account the cash that's currently on the balance sheet, cash generation at the two mines, and we do expect this to improve as the year wears on. Add that to the funding available under the corporate facility, our balance sheet is very strong, and it ensures that we're very well positioned to complete the funding of Yaouré, as well as fund other exploration and growth initiatives that we're considering.
Now, speaking of Yaouré, I mentioned that briefly earlier on, but other things that we've done to advance Yaouré during the quarter are as follows. We got the license. The exploitation license was finally granted to us on the 26th of April. This was a very long time in coming. I have to admit, our application had been lodged since January 2018, so it did take a long time, but we were very pleased when it finally arrived, and the timing of that coincided with us putting our final touches on our funding plan, so we were able to very quickly move from that point to seek board approval to move ahead, and we did, as I say, get the green light to push on with the development in May. Now, as soon as we did that, we signed up contracts with various members of the Lycopodium Group.
They'll be assisting us with design, procurement, and construction of the mill and infrastructure, and Lycopodium have been proceeding fairly rapidly on those fronts since then. Off-site, a range of contracts have been awarded. I think so far, there's been 24 contracts let. We've got tenders to hand for another 32 contract packages, and this represents about half of the work that of the tenders that will be done. On-site, we're going to see contractors starting to mobilize later this month, and so since May, we've been, or at least our development team has been working very hard at ensuring that we've got enough accommodation and facilities available on the sites for the contractors and employees when they arrive.
In addition to this, we've been working with our landowners to ensure that we've got access to land as and when we need it, and we've also been in recruitment mode, bringing together our development team who will perform some of the development work. So I'm very pleased to say that the vast majority of our development team is the group of people who built the Sissingué mine, and we've been able to largely put that group back together again, and having worked together once before, it's a big advantage in terms of being able to be fairly seamless in this construction. We've also been working on various tendering packages ourselves, so putting together the earthworks package, geotech drilling, electrical works, etc., etc., and they're all very much advanced and ready to be awarded.
At the end of June, we'd spent $12 million so far of the $265 million budget, and we'd committed about $90 million, mostly on engineering and procurement work. So things are moving very nicely on that front. I'll be at Yaouré next week, and looking forward very much to seeing the first dirt being moved if the local contractor mobilizes on Monday, as we hope they will. Now, just on that particular point, I should say that we have, as part of our development plan, we are seeking to maximise local input into the project, so we do recruit local people, people from the local area through. We use a consultative committee of senior people from the villages to help us select local labourers. We're also looking at local contractors as much as we can possibly do.
I mean, clearly, there are capacity constraints in that regard, but where possible, we do work locally. And of course, now that the exploitation permit's been granted, we are seeking to engage the Yaouré government to negotiate the terms of a mining convention that will incorporate a guarantee of fiscal stability throughout the life of the project. We are very keen to get this milestone behind us as soon as possible, and to that end, I expect to be meeting with Minister Jean-Claude Kouassi and his officials on Wednesday next week to discuss when we might see some action on this front.
I guess the one thing that we are learning is that patience is a virtue when dealing with the Yaouré government, so I'm not prepared to make any predictions about when the mining convention will be complete, but rest assured we are regarding that as a very, very high priority to get done as soon as possible. At this time, if there are no further delays, our target date of producing first gold in December 2020 is achievable, and we're doing all that we and our friends at Lycopodium know to do to be able to deliver on the milestone. So the Yaouré project is definitely moving forward. This quarter, we've achieved a few milestones, and we're very excited about what this all means for Perseus going forward.
We have the team to execute the development, as I said earlier, and they've demonstrated their capacity by their very slick development up at Sissingué, and it won't be long before we start ticking off milestones at Yaouré. Now, speaking of Yaouré, one subject that hasn't been a very high priority at Perseus in recent years is exploration. We have, however, been conducting a series of low-key exploration programs at each of Sissingué, Edikan, and Yaouré. We've had some success, but we have been budget-constrained as we've been building up cash to fund the Yaouré development.
But now that we've got the funding for Yaouré locked down and we do have excess cash, it is our intent to put a renewed focus on exploration as not only do we see some very real opportunities to increase the reserve inventories at each of our mines, particularly at Yaouré, but we also recognize that exploration success could provide us with our next mine or the mine after that. In both cases, success will only be achieved if we are drilling and our board is committed to ensure that our exploration effort is adequately funded and that our exploration teams are given every opportunity to create real shareholder value through the drill bits. So, as I said at the outset of this presentation, it's been a good quarter for Perseus once again. This is the 10th solid performance in succession.
We've achieved several milestones, and we are moving on with others. We continue to go from strength to strength as a company, and in terms of what's next, let me just say that operations-wise, the next two quarters should be better than this quarter, both in terms of production and cost. We are guiding the market for the next half year to 120,000 to 140,000 ounces of gold at $850-$1,000 an ounce. Now, as always, our guidance does allow for the unexpected to occur, but if all things go the way we plan, we should see a couple of very strong quarters coming up.
I should also say that production in the second half of the financial year will be even stronger than the first half as we move from the Fetish Pit, the relatively low-grade Fetish Pit, to the higher-grade AG Pit as our main ore source. Now, so far this month, up to the 15th of this month, things have been going very well at both of the mines, and we are progressing right on target. A slight gain at Sissingué is offset by a slight shortfall at Edikan, but between the two, we're bang on target, and if we can maintain that for the next 10 weeks of the quarter, then a very good result will be coming up. In terms of development, as I said, Yaouré is up and running.
We will be moving into high gear this quarter as work on the site starts to move forward, and there'll be some very visible evidence of progress that we'll be able to share with you. Exploration-wise, as I said, we will be accelerating our efforts to not only extend the life of our existing operations but also, hopefully, discover our next mine, and hopefully, we'll have some positive news on that to share. So once again, we're gearing up for yet another very busy quarter at Perseus, and hopefully, when I speak to you in three months' time, we'll be able to continue bringing very positive news of our achievements. So thank you very much, and I'm happy now to take any questions that you may have.
Thank you.
If you wish to ask a question, please press Star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star 2, and if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Michael Slifirski from Credit Suisse. Please go ahead.
Good morning, Jeff. Thank you. Four quickies from me, please. First of all, the cost achievement, very, very good. Just interested in what went in your favor that despite production being at the lower end of guidance, cost was mid-guidance. I guess normally, when you have lower production, you have higher cost, so interested in how you did perhaps better in cost than what we might have assumed for that production rate?
I think you're saying that, Michael, is the unit mining cost at Sissingué, it's quite a bit lower than what we had expected. We have made some gains on fuel there, I might add, relative to our budgets, so that's been a major contributor. But look, right across the company, we have a continuous improvement program running where we encourage people to identify incremental improvements in our business to bring down cost wherever they can. And so it's nothing being terribly spectacular, but right across the board, we've been able to pare back the cost basis of the company.
Yeah, Jeff, in that context, I'm interested in the sort of stability that you've had, how much that has assisted in sort of addressing costs once you've got stable operations. Has that sort of opened up a new level of cost-out opportunities?
I think it has. Look, I mean, the thing is that we are in a lot better control on the operations, particularly at Edikan now than we were in the past, and so it means that we can diagnose any problems very quickly and then make adjustments to what we're doing. So that, rather than wondering why things are running off track, we now fix them as soon as the data tells us that we need to. I mentioned in the presentation that we have incorporated some new technology into the processing. We're using Mill Slicers and various other pieces of equipment that control application of consumables, and they're all delivering benefits. I should say, actually, we expect them to continue.
We haven't got the best out of them yet, and we do expect to see some further improvements come through as we become more skilled at using that equipment.
Yeah, great. Thank you. Two others, I think. On Yaouré, I'm interested in how you've sort of maintained the schedule despite perhaps a slightly delayed start to what you initially anticipated. So how has that been achieved?
Look, I think, to be perfectly truthful, we have been chewing up into our float. We had a fairly generous float in the schedule to start with. The other thing is that what we've been looking at is carefully scheduling some of the earthworks to avoid potential delays from wet weather and the like. I think when we were originally planning, we were looking at a worst-case scenario. We are being a little bit smarter than that in the way we're going about the work.
Okay.
I mean, the target date of end of 2020 is a stretch target. The contracted date is January, but we think that, given the way we've been able to work well with Lycopodium in the past and things like that, that we can achieve stretch targets, and we'll be driving very hard to do that. We'd like to plan for success, I suppose you'd say.
Yeah, absolutely. Two others. The Mining Convention, is there sort of any limit on what the board is willing to spend before you've got the Mining Convention in place?
We haven't specifically talked about limits on the exercise. I mean, the mining convention, what it does is it guarantees that the fiscal terms that apply today will continue to apply. So it's not a matter that we're terrified about that, but we certainly would like to get it put to bed as soon as we practically can. It is a condition precedent in our loan arrangements for significant drawdowns on the facility, so there is a time imperative around it. But look, we want to move forward as quickly as we can. As I said, patience is a virtue here, and we're going to have to work with the government to bring them together. But look, this is a different situation this time around negotiating the convention compared to Sissingué, where Sissingué, we were breaking fresh grounds.
We were the first people to negotiate a convention under the new mining convention. Since then, the people at Endeavour have negotiated a mining convention, and of course, we are fairly well versed in what's required. So it's not like the task is as very complex and difficult as it was the first time around. We think it should be able to be dealt with reasonably promptly, but you can't start until both sides are sitting at the table, and that's the challenge.
Yeah. And then finally, with respect to hedging, how do you think about that, and what flexibility have you got? So where you've got prevailing gold prices that are clearly better than what your hedge price is, can you deliver entirely into spot? Is that your strategy? And then how do you think about what hedging is required and what you might add with respect to that requirement?
Okay. Well, look, under our debt facilities, the requirement is that we're hedged to 30% in the current financial year, 25% the following year, and 20% the year beyond that. That's our hedging commitment to the banking group, and we have those hedges in place today as we speak. Now, under our own hedging policy, the company's policy, we can hedge up to 30% of our projected production. So we do have a little bit of freeboard in that to get the best pricing that we can. Now, I think that our policy has been that if gold prices are up, what we do tend to do is to deliver into the hedges, lower-price hedges, and replace them with high-price hedges because we do keep the book rolling going forward and basically averaging up the price of the hedge book.
But look, the thing about hedging is this: that we regard the reason we do hedging is because this is a sensible and prudent risk management tool to manage the revenue line of the company at a time when we do have heavy spending involved in building projects, etc., etc. If the gold price is to run and to go substantially above current levels, what that means is that 70% of our production will be sold at much higher prices than our hedge book. But we do have the safety. We do have the knowledge that in the event that things go the other way, and let's face it, we've been in this business long enough to see prices well below current levels.
We do have the tools in place to make sure that we can comfortably stay in business and meet our obligations when perhaps someone without that hedging might be more exposed. So look, we're very comfortable with the way we do this. We've been doing hedging for a long time. We know what we're doing, and we continue to deliver good outcomes through the active management of our position.
Yeah. Great. Thanks very much, Jeff.
Thank you. Your next question comes from Reg Spencer from Canaccord. Please go ahead.
Thanks. Good morning, guys. Just a quick question, Edikan, Jeff. Obviously, we've had a little bit of variation in grade coming out of Esuajah North. I suppose, is there any change to expectations around grade coming out of Esuajah North and how you're balancing those variances with your throughput or hardness and recoveries, noting that you've still got another what, good nine months of sourcing ore from Esuajah North?
Look, Reg, the reconciliation on the ore body is very good, actually. I mean, going back in history, we did have a Mine Call Factor, and using the new plan that we're using, the Mine Call Factor is virtually down to zero. So if you look at the ore body as a whole, it is doing what it's expected to do. It's just that between one area, between one side of the ore body and the other, there are areas where it's harder and where it's softer. Now, what we do do, we have done hardness testing in the pit floor, so we gather data ahead of where we're going. Our grade control drilling is as far ahead as we can possibly achieve in order to be able to know what's happening with the grade.
So I think we're very active in the pit, monitoring and trying to predict exactly what's coming up in future periods. And so what we do is, using that data, is adjust our plans accordingly with the objective of maximizing gold production. And as I said earlier on in a rather long-winded statement, I mean, it does involve balancing off hardness, grade, recovery, etc., etc. We get it right a lot of the time. Sometimes we don't, but I think we are improving on that going forward. So we're not overly concerned about it, but it is a constant. It's a 24/7 activity to make sure that we don't veer off track too far.
Thanks. So I suppose where I'm going with this, Jeff, is just trying to get a feel for the grade profile as outlined in your new life of mine plan. Should we just be a little bit more conservative in light of what happened in this last quarter, or are you still comfortable with that?
No. No, not at all, Reg. I mean, I think the life of mine plans, they're longer-term plans, and you're putting in the projected average grade. Now, if we've been experiencing periods of lower grade, that means that if the ore body performs, then you should be seeing some higher grade in future periods and vice versa. If you've been putting through all the high-grade material now, then that probably tells you that you're going to see some lower grades later on. I think in terms of forecasting, I don't think there does need to be any adjustment. What we need to do is to be vigilant and to make sure we deliver as close as possible to those plans, and that is exactly what our team at Edikan is very, very focused on.
In fact, the team there is doing a super job and is very committed to delivering outcomes.
Okay. All right. Great. Thanks very much.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Quartermaine for closing remarks.
Okay. Thank you very much. Well, look, as I said, we are gearing up for another very busy period here at Perseus, and I think there is quite a lot more good news to come in future periods. So I look forward very much to bringing you another report, a quarterly report in three months' time. Thank you very much for your participation in the call today.