Thank you for standing by and welcome to the Perseus December 2017 Quarterly Conference. 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 your speaker today, Mr. Jeff Quartermaine, Managing Director and CEO. Please go ahead.
Thank you very much, and welcome to this conference call, a run-through of Perseus Mining's December 2017 Quarterly Report. For listeners' information, I'm calling this morning from our Edikan mine here in Ghana, and while telecommunications from here are usually reliable, if I do disappear in the middle of the call, I'll get back immediately. If that's not possible, I apologize now in advance. If it does happen, we will ensure the recording of what I'm intending to say is put up on the website, and so should you miss for any reason, you'll be able to catch up on things later on. Now, the other thing I should say in opening is that it's now about 5:00 A.M. in the morning over here, and if I sound a little flat, that's entirely unintentional and more the result of being a bit tired than anything else.
On the contrary, what Perseus has achieved during the December quarter and what I've seen at both our Sissingué and Edikan operations where I've been for the last few days gives me plenty of reason to be very buoyant and full of optimism about the future. Now, as you all know, the first three quarters of 2017 saw a strong resurgence in Perseus' operating performance across all fronts, but in particular at the Edikan mine here in Ghana. The fourth quarter that ended on 31 December has seen a continuation of that improved operating performance with solid production results at Edikan, strong progress in the development of our second mine, Sissingué, that culminated in the first gold last Friday, and also completion of a technical, sound, and commercially credible DFS for our third project at Yaouré.
So, as I said, I've got plenty of reasons to be feeling buoyant and full of enthusiasm. Now, I usually start these teleconferences talking about Edikan, as until a week or so ago, Edikan was our only operation. But I'm delighted to say that as a result of some excellent work by our in-house development team and contractors, most notably Lycopodium, we've now got two operating mines. The development of our second mine, Sissingué, is now complete. As I said before, we poured our first gold on Friday, Friday the 26th, no less, Australia Day. We're now in the process of ramping up production to nameplate, and on current indications, this will be achieved in February, and we will formally declare commercial production shortly thereafter.
Now, if this happens as we expect, it'll be about four to six weeks ahead of schedule and at a cost that's right on our budget of about $107 million U.S. dollars, which was the cost of development and also operational readiness preparations. If you add to this about $9 million of early works, then the total cost of the new mine and infrastructure comes in at around $116 million, which is exactly what we planned to do. The almost faultless execution of our development plan confirms our capacity to successfully develop projects here in West Africa, and this is particularly relevant in the context of our plans to start development of our third mine at Yaouré, also in Côte d'Ivoire, later this year.
We've got a proven match-fit development team that's ready and able to transfer the knowledge and experience gained at Sissingué to the Yaouré development, and this will have the impact of significantly reducing the development risk associated with that important project, but more of that later on. Now, development projects such as Sissingué and Yaouré, when it happens, are the product of a huge amount of work and effort by a lot of people, and I'd just like to acknowledge that. As noted, Perseus has assembled an excellent in-house development team led by Project Director Matt Scully and Construction Manager Ricardo Rodrigues, and their team benefited from their leadership as well as important contributions from our contractors such as Lycopodium, led by Karl Cicanese, who worked very hard to deliver this project ahead of time and on budget.
We've also been very fortunate to enjoy the full support of the Ivorian Department of Mines and Geology, ably led by Minister Jean-Claude Brou, as well as the senior members of our host community and their constituents, and hopefully, all these relationships will endure for the life of the mine, and I'd really like to sincerely thank all of these people for their respective contributions on what has been a job very well done, so Sissingué's up and running. It's very well designed and built. It's functioning beautifully, and we expect it to make a significant contribution to our overall performance for some time to come.
We think that the prospects of extending the existing mine life are very good, and to this end, now having finished the development, we've given the go-ahead to our exploration team to follow up on several near-mine exploration targets that we're very confident will ultimately yield additional mill feed for the Sissingué plant. With the completion of Sissingué, we've successfully made the transformation from being a single mine, single country business to a multi-mine, multi-jurisdiction operation, and we're now well on the way to achieving our goal of producing in excess of 500,000 ounces of gold from three West African operations, namely Edikan, Sissingué, and the yet-to-be-developed Yaouré. Speaking of Yaouré, we completed our definitive feasibility study as planned during the quarter in late October, and this was released to the market on schedule in early November.
An NI 43-101 compliance technical report for the project was also filed shortly before the end of December. Now, in summary, the DFS confirmed the very high quality of the project and the significant contribution that it can make to Perseus' short- to medium-term plans. For example, the project demonstrated a number of key points. Firstly, Yaouré's economics are very attractive at a range of gold prices and discount rates, and at current gold prices of around $1,350 an ounce, we generated 33% real unhedged IRR and achieved a payback of capital in about 28 months. At a 5% discount rate at these gold prices, the NPV of the project is about $350 million, and that equates to a healthy $0.44 a share, which is slightly more than what the share price of the entire company closed at today.
So, the value that will be unlocked by the development of Yaouré is very, very significant. The second point is that Yaouré is technically very robust, and it's got very attractive operating metrics based on JORC-compliant ore reserves of about 27 million tons, grading 1.8 grams a ton, containing about a 1.5 million ounces of gold. So, to put it into perspective, at this stage, we look like having an eight-and-a-half-year life based on that reserve. The strip ratio is about five. We're processing ore at a rate of about 3.3 million tons per annum. Over the first five years, the head grade will be 2.3 grams a ton, averaging 1.8 over the life of the mine. Recoveries will be around 90%. We recover about 1.37 million ounces over the life of the mine, but in the first five years, we produce on average 215,000 ounces a year.
All-in site costs will average about $7.60 an ounce over the life of the mine. In the first five years, it'll be a little bit lower than that. Now, as it stands at the moment, we've got strong production for about five- six years, and then things tail off as we move to the process, the stockpile ore. But I should point out that we expect that by the time we commit to develop the project, we will have defined sufficient additional reserves to extend this period of high performance by several years, and I'll speak of that exploration that we're planning to do shortly.
The third point that came out of the DFS was that the upfront capital cost of $263 million, which includes $11 million of pre-strip, is a sum that we believe is well within Perseus' funding capacity, using internally generated cash from Edikan and Sissingué, combined with some bank finance, and I'll speak of that in a moment too. The fourth point that's come out of this is that Yaouré really does have some excellent growth potential. It's located on a very prospective tenement package. We've got about 513 sq km of land holding, much of which has not been very comprehensively examined. So, to this end, what we have done is, since finishing the DFS, we've authorized an exploration program to follow up on some targets that were identified during the recently completed sterilization drilling program.
This drilling, we expect, will generate some additional resources, and it'll be followed up by a second small program that's targeting some in-pit mineralization that's currently classified as inferred resource, but that, with the additional drilling, it'll be converted to a reserve. So, that is pretty low-hanging fruit, and we do expect to increase the reserve quite readily. Now, outside of these targets, we've also got other drill targets that we will be following up, and in fact, we have already followed up to have a closer look at. I don't want to speculate too much about this at this stage, but I can say that we've recently identified some mineralization away from the defined pit area that has certainly got the attention of our geologists, not to mention me, as CEO.
So, we're very, very encouraged by what we're doing there, actually, and we think that that reserve is going to be extended quite substantially in years to come. The final point demonstrated by the DFS is that, given the very positive financial and technical parameters that apply to Yaouré, we are likely to generate some significant value when we develop this project. And when I say significant value, it's value that is very much in line with what we expected based on the DFS study that we performed when we acquired this property in April 2016. So, in other words, we're very, very comfortable with our acquisition, and we feel very certain that we've got what we paid for and then possibly some more. So, looking forward with Yaouré, a couple of things.
We've applied for the exploitation permit that was lodged earlier this year, covering our full development area, and that's currently under active consideration by the Minerals Commission. In fact, I sat with them last Thursday, and we had a good talk about that. Following the grant of the exploitation permit, we'll be in a position then to finalize compensation to various stakeholders and start some minor early works designed to secure the site and facilitate rapid ramp-up, so ramp-up of construction activities. Front-end engineering and design of the project will take place probably sometime in the June quarter. We need to complete that resource drilling I mentioned earlier first so that we have a clear picture of where to locate various pieces of infrastructure.
Following on from that, or at least in conjunction with that, we'll be developing a comprehensive execution plan that includes an appropriate contracting strategy, workforce planning, operational readiness, etc., and we'll get on to that pretty much as we're moving through with feed. The other thing that we're doing at the moment is, in conjunction with a recently appointed corporate advisor, we've begun evaluating the full range of financing alternatives that are available to the company to fund the development of Yaouré, and we expect that a preferred funding package will be identified and selected by the end of this quarter, after which we will move on and implement the financing plan and begin construction as soon as we're confident that the funds are locked in.
So, the Yaouré project's heading towards the starting blocks, and our board's got the starter's gun in their hand, so we're very, very excited about this one, and we have a team to develop the project, as we've demonstrated with Sissingué, and as I said, as soon as we're confident the funds are in hand, we'll get underway with that project. Now, turning to Edikan, which was our sole operating asset until recently, during the December quarter, we produced 56,699 ounces of gold, continuing the strong trend of production performances that was achieved in the three prior quarters. This results about 11% higher than in the September quarter, when we produced about 51,000 ounces, and it's 76% more than the December quarter in 2016. So, you can see that certainly in the 12 months that's elapsed since December 2016, we've certainly turned the corner and have moved on very strongly.
On a full-year basis, the gold production totaled 208,226 ounces in calendar 2017, which is the highest annual production since we started commercial production here at Edikan in 2012, and this was about 36% more than what was actually produced in calendar 2016. The strong result for the quarter was primarily driven by improved plant performance, so we had runtime averaging 94%, which was about 10% higher than the prior quarter. We had a throughput rate of 911 tons per hour, which was about 8% higher than the prior quarter, and this resulted in 19% more ore being processed than in the prior period.
The material improvement in that performance can be attributed to a range of factors, including improved maintenance practices, improved blending of the mill feed, improved fragmentation of the mill feed using increased powder factor, and also the deployment of a mobile crusher that we have been using to supplement our primary crusher, which needed to be maintained during the quarter. The 19% quarter-on-quarter increase in mill throughput was, however, partially offset by about 5% lower head grade at 1.1 grams a ton, and a 1% decrease in gold recovery at 86%. Now, I'll just make a comment or two on grade, as I know that this is something that is of interest to some of the listeners.
We carried out an exercise during the quarter aimed at checking the reconciliation of tons, head grade, and contained gold, estimated by our mineral resource block model relative to the grade control modeling over the last 12 months since we adopted the MIK modeling techniques in January 2017. Now, the results indicated that across the site, reconciliation of tons, grade, and contained metal was close to 100%. In fact, in Yaouré close to 100%. So, that means that in the grade control model, we're getting bang on what we expected to get as predicted by the resource model.
Now, I should point out that this is a study of mining from four pits, the four pits that we've currently been mining from, and on an individual pit-by-pit basis, the results varied over the 12 months, so some pits were better than others, as indeed they varied on a month-by-month basis. But taken over the 12 months, it was smack on target. The conclusion that one can draw from this analysis is that while the reconciliation is very good over an extended period, on a short-term horizon, positive and negative variances, they definitely do occur, and so basing judgments on short-term numbers can be a perilous activity, not to mention forecasting. Now, similar variability occurs in the reconciliation between grade control, the grade control model in the mill, and that obviously has the direct impact on how much gold is produced on a month-by-month or a quarter-by-quarter basis.
Now, when you're reporting on a quarterly basis, if you have two down months out of the three, then it qualifies as a disappointing quarter, even though over the 12-month period, this is absolutely not the case. Now, we have experienced a mine call factor during the course of this 12-month period. It's a little over 5% of contained metal, which is not out of line with industry standards. On a month-by-month basis, though, it moves up and down, and as I said, it can make predicting a little bit challenging, but over the longer term, we are delivering the gold to the mill, and that's the important thing.
Now, out of this reconciliation exercise, we identified a series of potential improvements in modeling, mining, and processing areas, all of which are aimed at reducing the variability, and these improvements have been implemented, and we are starting to see the benefits coming through now. So, I think as we move into the future, we'll be able to reduce that variability, which is much, much, much better from a planning point of view. Now, with respect to our all-in site costs, these were reasonably flat during the quarter. They were made up of, of course, the unit costs of mining, processing, and G&A. Now, unit mining costs, they increased from about $283 a ton to $349 a ton, and that reflected lower material movements over which to spread contracted fixed costs, the fact that we're mining deeper in the mining elevations, and therefore experienced greater haul distances this quarter.
As I said earlier, we also adopted a higher powder factor to improve rock breakage and improve throughput, and we also incurred more run-of-mine stockpile rehandle costs. Now, we did experience a crack in the outer shell of the crusher during the quarter, and so while that was prior to that being able to be repaired, we needed to nurse it along, and so we were loading the crusher with a front-end loader rather than direct tipping, so that did incur some additional costs. The other thing that's worth noting is that the cost of fuel is increasing too, so on a quarter-by-quarter basis, we saw a jump in the fuel price go from AUD 0.94 a liter to AUD 1.02, so all those things combined to push up the unit mining costs.
On the other hand, unit processing costs decreased 5% from $10.61 to $10.08 a ton, which, given the elevated throughput, wasn't as great a decrease as we might expect. The total processing cost base was affected by several factors. As I mentioned earlier, we used a temporary mobile crusher to supplement the primary crusher while we were getting ready for the overhaul. The cost of the overhaul itself was very expensive, and we also incurred some additional costs through the addition of peroxide to help the CIL recovery process. So, there are a few factors there that influenced what we were doing. G&A costs were pretty flat. I think they were down a little bit on the prior quarter, $1.47 million a month compared to $1.53, so that was pretty good.
Looking on a cost-per-ounce basis, unit production costs for the quarter, so that includes all mining, including waste stripping, processing, G&A, but excluding royalties, they decreased by 2% to $9.98 an ounce. That was down on the prior quarter. There was a slight decrease in royalties and a slight increase in sustaining capital, so the all-in site cost for the quarter was $1,093 an ounce, about 2% lower than the September result and about 2%, in fact, lower than the average cost over the preceding or the total three quarters. So, that's the all-in site cost. That includes all capital spent on the site, in fact, all costs spent on the site, and that is the number that should be used working out cash flow. Now, speaking of that, the average price of gold that we sold during the quarter was $1,260 an ounce.
That was for the full year, sorry, for the full year was $1,275, $1,260 for the quarter. So, we've been generating positive cash margins, $167 an ounce, $166 over the year. We have been generating cash, although not as much as we would have liked to at this particular point in time. So, in terms of Edikan, our sole operating mine, we certainly turned the corner some time ago, and this quarter, combined with the last three quarters, is clear proof of that. As I said last quarter, talking about this, this improvement is not a fluke. It's part of a long-term trend of strong performance, and it's been brought about by some fairly material changes in the way that we go about doing our business.
Now, our confidence in the future of Edikan remains very strong, and having spent the last couple of days on site with our team going through things top to bottom, I'm very comfortable that we're in the best shape ever at Edikan. The team is firing on all cylinders and is very committed to achieving our targeted outcomes. During the last couple of days, we've launched an initiative to reduce our cost base while at the same time continuing to increase our gold production, and I'm looking forward very much to reporting the results of this initiative in coming months. Looking forward to the second half of 2018, we will continue, obviously, producing gold from Edikan, but we'll also start producing from Sissingué partway through the period.
Now, as a result of that, our total production and cost guidance for the fiscal year 2018 and for the second half remain unchanged, so we're talking of 140,000-160,000 ounces at all-in site costs of $950-$1,050. Before somebody asks me what the split between Edikan and Sissingué is, I will say that at this point, we're not willing to disclose that. We have not yet reached commercial production, and until we do achieve that particular point, there is some uncertainty over the exact split of numbers. But suffice to say, we're very comfortable with this forecast, and based on the performance at Edikan up until today, looking at the latest data that's come in, we're bang on track for delivering, so it does look as if another good half year is in the making.
Now, turning to corporate matters, based on the $1,291 gold price at the end of December and exchange rate of 78 cents, we had cash and bullion on hand of about $45 million, which was $3 million short of the $48 million we had at the end of the September quarter. That sum included $22 million of cash and 14,280 ounces of bullion on hand, so that's fairly similar to where we have been. As I said, it's about $3 million less than what we had at the end of September. The main uses of we had positive inflows of cash from Edikan, about $12 million. We had negative working capital movements of $22 million. We did actually want to reduce our creditors very substantially as we came into the end of the year, so we did deploy quite a lot of cash to dealing with that.
We obviously spent money on the Sissingué development and at the same time drew down cash under the Sissingué facility. We also drew some cash under our revolving working capital facility and spent money on exploration and evaluation and corporate costs. So, everything was pretty much tracking according to plan, and at the end of the period, we were left with $45 million. Also, at the end of the quarter, we had forward sales in place, about 150,000 ounces of gold at an average price of $1,285. That was about 15,000 ounces lower than at the end of September, but the average price was higher.
As the prices run up in the last couple of weeks, I should mention that we have added to our position, so as we speak, we're about hedged to about 175,000 ounces at an average price of a touch over $1,300 an ounce, and that's well within our hedging policy that's served us very well over the last years. And what that's done is it's locked in a position where we can have real confidence that we will generate the cash that we are expecting to do in coming periods. In terms of debt, $15 million was drawn under our $40 million project facility for Sissingué during the quarter, so that meant that at the end of the quarter, we were drawn 25 of the 40.
The remaining $15 million under that facility that's available will probably be drawn in the next short period of time to fund the completion of the Sissingué development when all the bills come in, so that's fine. All that is covered. During the quarter, we transformed the $20 million working capital facility that we had into a $30 million revolving line of credit. We did that to give ourselves a little bit more flexibility in terms of managing working capital, and in particular, we wanted to be in a position to fund some of the high potential exploration activities that we're targeting in coming months. That facility was drawn down to about $25 million at the end of the month, so there's still some undrawn capacity there, and that'll be paid back and drawn on a come-and-go basis as we go forward.
So, what all this means is that not only are we generating cash from Edikan and very shortly from Sissingué, but we've also got cash in the bank, and we've got undrawn credit available to us, so suffice to say, we're in fairly good shape financially. So, in conclusion, I think that the results of this December quarter speak for themselves, and it's strongly added to our investment case, and that Perseus represents outstanding value for shareholders who are looking for opportunities in the gold space. Now, just in case you missed the key points from our quarterly report, let me just repeat them for you. So, firstly, Perseus is now producing gold from two operating mines, both of which are performing well.
Edikan is consistently strong in its performance and has just produced the highest annual production in its history, registering a 76% increase greater than this time last year. So, the performance at Edikan is very strong. Sissingué is shaping up extremely well, and it'll become a meaningful contributor before the end of the quarter and probably for some time to come beyond that. We have kicked off some exploration around Sissingué, looking to delineate additional reserves, and what this means is that we do expect that that excellent processing facility that's just been completed will be in service for a lot longer than people expect.
Following on from the successful development of Sissingué, bringing that project in on time or ahead of time and on budget, it all goes very well for the next development project at Yaouré, and that DFS certainly paints a very attractive picture of a very attractive project based on the currently defined reserves. And as I said earlier, as we expect that we will extend those reserves with exploration success, and Yaouré will become the flagship of Perseus's asset portfolio when it comes into production in a couple of years from now. We are in good shape financially. Our financing plan is underpinned by a prudent gold price hedging program, and it's serving us well. Our financial management team's doing an excellent job, and when it comes to funding Yaouré, I've got no doubt that that will be something that will be delivered in our stride.
Finally, we've got two operating mines now and a third financially attractive project nearly ready to move into development, and we've made an excellent start towards delivering on our short to medium-term growth objectives. We don't need to find any new reserves, really. We don't need to buy any new projects. We're in a position to deliver that growth in production and earnings from the assets that we currently own and we're currently working on. As we've been demonstrating now for four successive quarters, we are accumulating a very solid track record of delivering on our promises and presenting a credible case for investment that we think the market is going to find increasingly difficult to ignore. Thank you very much for your attention. I'm now happy to take any questions that you may have. Thank you.
If you wish to ask a question, please press star one on your telephone. There might be a name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Cathy Moises from Patersons Securities. Please go ahead.
Happy New Year, Jeff. Just a quick question on the reconciliation. Wondering how Esuajah North's reconciliation is tracking versus the historic pits with the problems which Fetish and Chirawewa. And going forward for the second half, is it going to be predominantly Esuajah North?
Esuajah North is very good. It's bang on target, actually. Fobinso is slightly ahead. Chirawewa is quite a lot ahead, and Fetish is behind. So, as I said, pick the pit. It varies, and they're up and down for various reasons. The main ore source going forward for the next six months is going to be Fobinso and Fetish and Chirawewa. So, the ore that's coming out looks very good. In fact, in the last couple of days, we've seen some very fancy grades, indeed. So, that reconciliation work is consistent with what we expected, and what we have to do on a day-to-day basis is manage the ore blend, get the right material into the mill, and get the gold out the back end.
Fantastic. Thanks, Jeff.
Thank you. Your next question comes from Dylan Kelly from CLSA. Please go ahead.
Yes, good morning, Jeff. Congratulations to you and the team on the efforts at Sissingué. I've just got a question here just about guidance. So, you've left the second half unchanged. You must be pretty confident about achieving it. To give us some confidence around that outlook, can you walk us through the mine plan over the next six months and break down the key elements in terms of what's happening and what's moving? So, particular focus on your key ore sources and key pits, what the focus are of the operations, and what major shutdowns can we expect, and what's the maintenance schedule looking like over the coming two quarters?
Okay, Dylan, thanks for asking that question. I've just spent the last two days discussing all those issues, and on this call, I don't believe I can address all of those subjects fully. But suffice to say, we're very comfortable with that forecast. We've been through this top to bottom, both here and at Sissingué, and we will be delivering. We're very comfortable that we'll be delivering those numbers. I've already answered the question as to the all sources coming from the various pits. We have a couple of scheduled shutdowns on the way through. I think we've got a shutdown coming through in February that's going to address some of the issues around the crusher, and we've got some shutdowns, I think it's in May as well. We've got the runtime of the mill is very good.
It's interesting, actually, because if you go back 12 months ago, we'd come to the site, and you'd look up very anxiously at that mill and see if it was turning, well, now we expect that mill to be turning all the time, and the times when it's not are absolutely an exception rather than anything else. So, in terms of the actual performance, the physical performance of the mill, I've got absolutely no doubt at all that we will be delivering, continuing to deliver very good results in terms of availability, throughput rate, and recoveries. The variable in the equation at Edikan is grade, and we believe that the initiatives we've put in place to reduce volatility are going to be effective, and off the back of that, we feel very strongly that the guidance for Edikan is very attainable.
And as I said, what's been produced, I think I've got data up to about two days ago, about a day ago, that certainly indicates that this month's running very nicely. As far as Sissingué's concerned, we believe the commissioning is coming along very nicely, and we've been progressively inching up the throughput rates there as we've been going. We poured the first gold last Friday, but prior to that, we'd run 24 hours a day for the preceding four or five days. So, the mill is running extremely well over there. The grade control practices are going well, so we've got quite a, we've got three or four months of grade control data to hand, so we're pretty comfortable in the forecasts around grade going into the mill. And the ore body's performing exactly as we predicted it would perform in terms of grade control to block model.
As to grade control to mill, we won't know until we actually get into the work, but the variable in Sissingué is that while we expect that commissioning process to be very smooth, reflecting everything that's gone on that site today, there's no certainty that that'll happen. When you're commissioning, there's no certainty that you won't get a breakage of equipment or something along those lines. We're not really in a position to make bold predictions about exactly what will come from Sissingué just yet. That'll come in due course. What we are very confident about is that we've got enough freeboard in both of the projects to be able to deliver the guidance that we've given.
Okay, great. Thanks, Jeff.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand back for closing remarks.
Okay, thank you very much, and thank you all for your attendance at this conference. As I said right from the outset, we're feeling very optimistic about our future here at Perseus. Things are tracking along very nicely. Everything that we are planning to do is coming to fruition, and we've got a lot of activities planned over the next six months and some quite strong news flow coming through. So, I think that with the delivery of that news, the market's going to find it fairly difficult to continue to ignore, and hopefully, we'll see that reflected in the share price. Anyway, thank you very much, and we'll speak again in another three months' time.