Thank you for standing by, and welcome to the Perseus Mining Yaouré DFS Investor Conference call. All participants are in a listen-only mode. There'll 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 teleconference to discuss Perseus' DFS study of Yaouré, the results of which were released to the market today, along with our JORC compliant estimates of mineral resources and ore reserves, as well as a fairly comprehensive presentation that goes into quite considerable detail about the DFS. On the call this morning, I'm joined by our Group General Manager, Technical Services, Paul Thompson, whose team that included both in-house technical staff and external consultants was responsible for preparing the study. Paul will be available to answer any specific questions about the DFS that you may like to ask when we reach that section of this teleconference. But before getting into the details, let me provide some context to the DFS results that we published today.
Firstly, for those of you that don't know, the Yaouré Gold Project, which we expect will be our third operating mine, is located in Côte d'Ivoire, and it's located on what might be described as an ideal brownfields development site. It's been host to two previous mining operations, and it's located adjacent to the Kossou Water Storage Dam and Hydroelectricity Power Station. It's about 35 km from the Ivorian capital city of Yamoussoukro. Yaouré was acquired by Perseus in April 2016 when we merged with a small AIM-listed company called Amara Mining. Now, as a lead-up to the Amara transaction, Perseus undertook an exhaustive due diligence study on the Yaouré Project, and this included, amongst other things, preparing an estimate of mineral resources and ore reserves from first principles based on all the drill data that was available at that time.
Now, what this study told us was that the optimum Yaouré Project was likely to be quite different to the project marketed by Amara, but if our assessment of the resources and reserves was correct, and if a project could be delivered along the lines that we envisaged, then this would still make a very valuable contribution to our asset portfolio and going forward would represent a key element of our corporate strategy that involves transitioning into a multi-mine, geopolitically diversified West African gold miner in the short to medium term. I think that the results that we've released today validate our pre-acquisition thoughts, but more of that later on. So, fast forward to today, since we've acquired the project, we've planned and delivered on three important milestones.
Firstly, we converted a tenuous land position into a clear-cut, legally robust position where we now hold two exploration licenses covering the Yaouré Project area. These are valid till the end of 2018. And we've also established a way forward for the granting of an exploitation permit to enable the project development to proceed in the not-too-distant future. I should also add to this that we also hold title to a very large land position that surrounds the currently defined project area, which we believe has enormous potential for further discoveries in the close proximity to the planned Yaouré processing facility. Secondly, we've completed a 72,000-meter drilling program that included 35,000 meters of resource definition drilling and a further 13,000 meters of grade control drilling. And this was designed to improve our level of confidence in the mineral resource estimates.
Now, this is important because not only did it improve our level of confidence and knowledge of the ore bodies, but it's also shown the way for the future drill programs that we expect will lead to material upgrades of Yaouré's mineral resources and ore reserves in the near and longer term. And thirdly, and this is why we're having this teleconference today, we've completed a comprehensive, commercially and technically sound definitive feasibility study of the project, the results of which have been released. So, turning to the results of the study, the project that we've defined, firstly, it's commercially very robust, and it generates very attractive economic returns at a range of gold prices and discount rates. Now, given that gold's been trading in the range of 1,200 to 1,300 for the best part of this year, consider the economics at a gold price of $1,250 an ounce.
At $1,250 an ounce, we generate a 27% ungeared after-tax internal rate of return. There's a 32-month payback on the capital investment. The net present value of the project, depending on which discount rate you use, it's $259 million at 5% discount or $170 million. These are US dollars I'm talking at 10% discount rate. Now, on a per-share basis, using a 0.77 exchange rate, this translates to about AUD 0.33 or AUD 0.21 a share, depending on which discount rate you use. Now, in either case, this represents a very material proportion of our current share price, which means that our shares are currently materially mispriced by the market.
Now, further supporting the statement that the project is economically very robust, I would refer you to a table that appears in our release towards the end that indicates the cash-generating capacity of the project at a range of gold prices. Now, once again, considering that situation at $1,250 an ounce, over the life of the project, we generate $644 million US dollars in cash or $381 million US dollars in cash net of our capital investment. That is after we've paid back all capital we invest. Now, if we look at that over the first five years of the mine life, this equates on a cash flow per share basis to about AUD 0.14 a share. And over the life of the mine, it equates to about AUD 0.09 a share.
So, if you're in the habit of valuing companies on cash flow multiples, then on the basis of Yaouré alone, as I said, Perseus' share price is somewhat mispriced, particularly when you factor in Sissingué and Edikan into the equation. So, the economics coming off the project are, as I say, very attractive indeed. Now, the second thing that the DFS has clearly demonstrated is that the project's technically very robust. We have a JORC compliant ore reserve, 27 million tons grading 1.8 grams, containing 1.5 million ounces of gold. Now, that's an important point, the JORC compliancing. Previous statements by the prior owners around the resource reserves weren't JORC compliant. These are. We've got a strip ratio averaging about 5.1 over the life of the project.
In the first five years of the mine life, the head grade of the 3.3 million tonne of ore per year that we will be processing averages about 2.3 grams a tonne. And it results in average production of 215,000 ounces of gold a year for that period, or 161,000 per year over the full eight and a half year mine life. Now, as we know from our experience at Edikan, operating mines in West Africa with low head grades is a tricky business. So, having a 2.3 gram per tonne head grade certainly gives us some comfort in terms of the robustness of the project. The average gold recovery is 90%, so that's an indicator that the metallurgy is very good.
Life-of-mine unit costs for mining, processing, and G&A run around $330 per tonne mined, about $11.97 per tonne processed for processing, and $345 per tonne for G&A, and that converts into an all-in sustaining cost at an assumed gold price of $1,250 of $734 per ounce over the first five years, or $759 per ounce over the entire mine life. Not only do we have very strong gold production, but we also have relatively low all-in sustaining costs, which from Perseus' perspective will average down the cost across the company. Now, in concluding these parameters, I do note that the work that's gone into undertaking this feasibility study has been of the highest quality and will stand the scrutiny of the most discerning critics. The work that's been done in estimating the mineral resources and reserves is backed by the results of a considerable quantity of drilling.
I mentioned the 72,000-meter program that we did before. But in addition to that, we've also done a very, very thorough review on the QAQC that would apply to the historical drilling that had been conducted on the site by the previous owners, which was BRGM and Amara. We've used MIK resource estimating techniques that are very well suited to the style of mineralization present at Yaouré, and our pit optimization practices are practical, if not a little conservative. To arrive at our costs, we didn't just rely on the database of a consulting engineer that was populated many years ago from different projects in different jurisdictions. What we've done is we've got actual live data into our modeling. So, our mining costs are based on the results of a request for tender, from which we got five credible responses from the seven mining contractors that visited our site.
The cost of consumables and labor are based on actual orders that we have placed recently for Sissingué and Edikan operations, and labor is based on the labor prices that we're actually paying as we recruit for our Sissingué project right now. On the capital estimate side of things, this is prepared by, with the help of Lycopodium, who, as you're probably aware, not only is currently building our Sissingué project in Côte d'Ivoire, but has also recently built Agbaou, also in Côte d'Ivoire, and Houndé. Both of those projects are of a similar size, and as you would observe, are both located in French West Africa, so we're very satisfied with the efficacy of the results of the study, and we're quite prepared for these results to be used as a future benchmark of our performance.
Now, the third thing that's come out of this DFS that is important is that the project is eminently financeable. The capital cost of development of Yaouré is all up to $63 million, including $11 million of pre-stripping costs. So, $252 million for the plant and infrastructure and a further $11 million for pre-stripping. In any event, the sum is well within Perseus' capacity to fund using a combination of internally generated cash flow from our Edikan and Sissingué operations, plus up to 130-odd million of either project or corporate debt finance if we decide to go that way, plus the proceeds of up to $40 million from the potential exercise of April 2019 warrants that are currently on issue.
Now, our shareholders have made it very clear to us that it's their strong preference that the start of the full-scale development of Yaouré be deferred until such time as we've accumulated sufficient internally generated cash to combine with debt to fully fund the project, in preference to us raising new equity capital at a share price that's substantially below intrinsic value, which is currently the case, as I was saying before. Let me assure all those shareholders and any other present or future shareholders or hedge funds, for that matter, listening to the call, that this message has been heard loud and clear and is fully understood by management. The fourth thing that came out of the study that is important is that Yaouré has potential for very material growth. I've alluded to this a couple of times already.
Now, while our estimated 1.9 million ounces of mineral resources and 1.5 million ounces of reserves materially increases our total mineral inventory across the board, there still remains significant potential for conversion of some of that 1.5 million ounces inferred mineral resource into indicated, and we'll be going after that fairly shortly. We've also identified several other targets in close proximity to the pits and, in fact, close proximity to the proposed site of the processing facility and tailing stand that have the potential to add to the mineral resource inventory. And once again, we'll be pursuing those opportunities in the not-too-distant future. Now, in addition to that, we hold 513 square kilometers of land around the Yaouré area under exploration license.
Our explorers have not had time to do a very detailed assessment of that, but what work has been done has indicated that there's very strong potential there and we'll be looking to that in the future. In other words, in defining the Yaouré project to this point, what we have done is we've focused our efforts on the mineralization that's been historically defined and mined up until now. We've not sought to expand our horizons to locate additional deposits. What we have defined by the recently completed DFS gives us an economically very strong project that will pay for itself in less than three years. Any further discoveries that we make will only enhance the economic appeal of the investment. This is precisely what we expect will happen once we recommence drilling operations, which we expect will occur in the next month or so.
Now, finally, I'm pleased to say, commenting on the DFS, that the Yaouré project that we have described today is very similar to the project that we envisaged when we did our due diligence review before we acquired the project. It's very similar to the project for which we actually paid. In other words, I'm very pleased to say that this DFS confirms that we got what we paid for. That's something that not every mining company that's made an acquisition in the last few years can say. In closing, needless to say, we're very, very excited by the prospects of the Yaouré project. We acquired this project at a time when the market wasn't rewarding growth and, in fact, in some cases, was quite negative about companies that sought to get growth.
The DFS that we've delivered today, I think, very much indicates our decision to proceed with the acquisition. Strategically, Yaouré is a very good fit for Perseus. It'll increase our footprint in Côte d'Ivoire, which is one of the more attractive destinations for mining investment in the world. And it will have the effect of decreasing our reliance on a single jurisdiction in Ghana, which is where we're operating at the current time. It'll also provide us with a third income stream, which, when combined with Edikan and Sissingué, will be quite significant and should position us to materially reward the faith of our shareholders for years to come.
The next six months, I'm sure, are going to move very rapidly as we work with the Ivorian government and our host community to put in place all the necessary licenses, mining conventions, and other arrangements needed to give the project certainty throughout its life. And we'll work with the engineers to come up with some specific plans to turn Yaouré from a theoretical development into a buildable and operable proposition that makes money for shareholders. We'll also be working with our advisors to put in place a funding mechanism that works for shareholders, and this is a very important point. We are in the enviable position of having an array of funding mechanisms at our disposal. And what we need to do is to select the best funding plan, not the first funding plan.
Front and centre of this, when we do it, is consideration of what is the best outcome for shareholders. So, as I said, we're very excited about this. We're looking forward to moving forward, and I think that we have a very good project here in Yaouré. So, with that, I'll open the floor to questions, and I'll ask my colleague Paul Thompson, who has led the team, to join me in responding to any detailed questions that you have. Thank you very much.
Thank you. If you wish to ask a question, please press Star, then 1 on your telephone, and wait for your name to be announced. If you wish to cancel your request, please press Star, then 2. If you're on a speakerphone, please pick up the handset to ask your question. We will now pause briefly to allow questions to enter the queue.
Your first question comes from Simon Jackson, a private investor. Please go ahead.
Hi. Can you give some more detail on your financing options?
Yes. Well, I guess the financing options that we have, there's a full spectrum of them. So, at one end of the spectrum, we could finance the project entirely from internally generated cash flow. And based on our forecasts at the present time, that would involve deferring full-scale development until 2019. Now, we'd obviously like to get going a little sooner than that. So, moving along the spectrum, we could consider introducing some debt into the equation, so either some project finance or corporate finance. And we think, based on the economics, that we could comfortably support something in the range of $120-$130 million of debt financing. So, that would mean that the amount of internally generated cash that's required is substantially less, and that would enable us to get underway much, much sooner.
Moving further across the spectrum, we have a number of other opportunities available to us. We could always consider things along the line of introducing joint venture partners to some of our projects and using that finance as well. But that's something that we need to explore in some detail. So, there's quite a range of propositions there, as I say, ranging from fully funding it through internally generated cash to some more complicated arrangements. The point I made earlier in the presentation was the very nice thing about this is that we do have options. We have alternatives available to us, and we're not forced to go down a particular route that may not necessarily be in the interest of shareholders.
Thank you. Your next question comes from Reg Spencer from Canaccord . Please go ahead.
Yes. Thank you. Good morning, Jeff. My main question is around the resource estimate. If we have a look at the previous Amara estimate of 151 million tonnes, I just would like to get a better understanding of, post the extensive drilling that you guys have done, what were the key differences in the outcomes which led to such a significant reduction in overall tonnage?
Okay, well, I'll let Paul answer that in some detail. But I guess the point I just would make is this: the Amara work is not particularly relevant to the work that we've done. We've done work from first principles, and the answers are what they are. But Paul, perhaps you could elaborate on those differences.
What we identified from the work is that the CMA deposit is very similar to that defined by Amara in terms of both size and grade of where it's actually worked out. But the big difference has been with the CMA area of the ore body, where we identified that there were specific structures that were controlling the mineralization and that previous estimates hadn't constrained that mineralization very well. So, what we did was focus very much on a small area which would fall within an economic pit, and identified within that area a zone where we did some grade control drilling. And what we did there was clearly define where the structures were that were continuous, that were controlling the mineralization. And we also identified there were less continuous structures which were also holding similar grade mineralization but not stretching over hundreds of meters like the main structures.
What we were able to do then was effectively from using MIK method to define what we thought was the correct grade tonnage curve, which hadn't been defined correctly from previous estimates.
Okay. Understood. Thank you. The other question for me just relates around the timetable. Jeff, I know that you mentioned that development was unlikely to proceed until such time as, number one, you complete permitting, but also, two, when you're in a much stronger position based on internally generated cash. Can you just give us maybe a little bit of a breakdown of the key sequences or the key steps in the permitting between now and construction start? I'm presuming that includes the finalization of a mining convention with the Ivorian government and whether or not that would include any tax holiday periods.
All right. No. Well, the way forward is fairly clear. First up, we'll be finalizing all the documentation around the DFS and releasing a technical report in December. So, that's the first milestone along the way. Secondly, what we'll be doing is getting the front-end engineering and design exercise underway and also doing some additional drilling. So, those things will occur before the end of this calendar year. We'll sit down with the government very early in the new year on the issue of licensing and the mining convention. We've already had quite significant discussions with the government on this particular matter.
And the view is that it won't take very much time at all to put those documents in place, particularly the mining convention, because the mining convention that we negotiated for the Sissingué project last year has now been adopted by Côte d'Ivoire as basically the standard for mining conventions for new projects. And so, the amount of renegotiation of that is very, very minimal. And you're quite right. That document does actually enshrine, well, actually, it's in the fiscal code, but it enshrines the fiscal codes that do provide for a five-year tax holiday for the project. So, the availability of that tax holiday was a very important part of our planning on the project. Beyond that point, what we'll also be doing, starting in the beginning of next year, is working on our financing options.
We believe that we'll have something in place in the second half of 2018 that we'll be comfortable to move forward on. I mean, we don't want to preempt the outcome of those by any stretch of the imagination, but certainly, we've given a good deal of preliminary thinking to the way forward at this stage, and we've clearly identified options. We most likely will start some preliminary works on the Yaouré side towards the middle of next year. What we want to do is we want to finish the development of Sissingué first and get that into commercial production before we start work on a second front. Now, you should probably be aware that we believe that commercial production for Sissingué will occur on about the first of April next year, the beginning of the second quarter.
As the time moves forward, we'll start to do some work around Yaouré. Now, before we actually commit to development of Yaouré, not only do we need to put financing in place, but what we also need to do is to come up with a very comprehensive development plan and execution plan. Now, this is a really important part of what we do. We did this on Sissingué, and the subsequent development has gone extremely well. So, time spent putting our thoughts together upfront, I think, is terribly important, and that's what we will be doing on this project.
Okay. Great. Thank you.
Thank you. Your next question comes from Duncan Hughes from Bell Potter . Please go ahead.
Morning, gents. First thing is, thanks very much for putting so much information out in today's announcement. It makes my job a lot easier. Reg pretty much covered a couple of my questions. Just to follow on from that, I know timing of construction is obviously governed by cash flows, and I understand that's tough to put a timetable on. But your feasibility study and permitting, as well as you've already mentioned financing timing, is it fair from a modeling perspective to assume that by the end of calendar year 2018, you might well be in a position to have completed those studies and the permitting process as well?
Yeah. I think that's a very reasonable assumption, if not a little conservative, at the end of 2018. I mean, we'd be hoping to be in a position a little sooner than that, but I don't want to be too definitive about it. But if you were to assume the end of 2018, then you would certainly fall within our expectations, that's for sure.
Brilliant. Thanks. Another couple of questions, probably on the more technical side. Firstly, having a look at the processing costs, they came in a little lower than I'd anticipated. Clearly, it's a hydro power. It helps with the cost a lot, but it's very hard rock and a relatively fine grind. I just wondered, firstly, if you'd just give a bit more colour on how the costs came in and what's driving those.
Yeah. Paul?
Yeah. The costs are slightly lower than we were expecting them to be. The power is actually supplied off the grid. Even though we are next to the hydro dam, we are actually purchasing power off the grid rather than from the hydro, so just clarify that one. But basically, we've gone through a pretty thorough assessment based on recent Edikan's and Sissingué experience in terms of reagent costs. We've done a lot of test work that was focused on reagent consumption. And one of the things that we were pleasantly surprised with was the cyanide consumption. The ores are very clean, which means the consumption of cyanide is actually a bit lower than we thought it was going to be. So, that's really what's driving the lower cost than we were expecting.
We've also done a good deal of work (Paul, correct me if I'm wrong here) in the trade-off between blasting and grinding, and that's.
Yes. Yes. We identified when we were doing the due diligence that the ore was hard and it isn't highly jointed, so that we've put a lot of effort into blasting studies and optimizing the mine-to-mill comminution, not just focused on the crushing and grinding but also focused on the blasting side of things. So, the blasting cost is high, and that's focused on delivering a well-fragmented product to the primary crusher.
Thanks. And one last one. Obviously, you would have looked at various scenarios on the size of your plant and your mine life. Looking through the charts in the presentation, the bulk of the production comes in the first five years. I know there's a five-year tax holiday. But I mean, what happens to the story if you used a smaller plant? Obviously, your initial CapEx would be a little bit lower. I mean, in loose terms, how does that affect the economics if you were to have a longer mine life with lower but more consistent sort of production in terms of ounces?
Yeah. We looked at throughput rates from two and a half to four and a half. And what we found was that because the CMA deposit is very robust and you've got a specific tonnage sitting there, which is effectively five years of high grade, you really wanted to put that through as quickly as you could to get the return on the capital. So, it was really driven by that CMA deposit having 20 million tonnes of ore, of which around 15 million is 2.3 grammes or thereabouts, and putting that through at the 3 million tonnes per annum.
The other thing I'd add on to that too, Duncan, is that we've defined a project today that's eight and a half years of life, that we have very little expectation that the mine is going to stop after eight and a half years. And in fact, we have very little expectation that that high-grade material is going to stop after six years. The purpose of what we needed to draw a line in the sand as far as the drilling was concerned and put a project around it, and that's what we've done. But we will be continuing drilling in and around the pits and close proximity, etc., and have every expectation that, in fact, the period of processing high-grade ore will extend well beyond the currently defined project. I mean, this is the start of the exercise, not the end of the exercise.
Brilliant. Thanks very much, gents.
Thank you. That does conclude the Q&A component of the conference. I'll now hand back to Mr. Quartermaine for closing remarks.
Okay. Well, thanks very much for your patience being on the call today. I don't think there's a lot more to say other than that we are very keen to get underway with the projects now, having done the work that we've done. And we're hopeful that we'll be able to bring successive items of news to the market over the next few months, along with other very good results that we're generating from our other two properties, Sissingué and Edikan. So, thank you very much for joining the call, and we will speak again shortly.