Perseus pours first gold from Central Ashanti

Perth-based Perseus Mining (PRU-A, PRU-T) has started producing gold from its Central Ashanti gold project in Ghana’s renowned Ashanti gold belt. After ramping up to full production, the company plans to produce 265,000 oz. gold per year there starting in 2012. Operating costs are expected to be around US$500 per gold oz.

In late August, the company successfully poured the first 2,666 grams of gold, or 94 oz., from the processing plant in a trial pour. Perseus says early commissioning of the mill is progressing well and the operation is on track to begin commercial production in around three months.

Ramp-up of mining activities is also on schedule. Pre-stripping is largely complete and approximately 700,000 tonnes of ore have already been stockpiled. Average throughput at the mine is expected to be around 7.9 million tonnes per year, or 21,500 tonnes per day, once it reaches nameplate capacity.

Central Ashanti is the company’s first project to reach the production stage. Construction began in June 2010 at a cost of around US$175 million, financed through a roughly 3:1 mix of equity to debt. Perseus is initially using an Australian mining contractor employing about 308 people at the site, all the while hiring people for its own operations team. So far it has around 51 management positions filled and 143 operational positions filled.

The Central Ashanti gold project (CAPG) last saw production from 1994 to 2001, when AngloGold Ashanti (AU-N) ran a small heap-leach operation there before the price of gold fell and the project became uneconomic. AngloGold produced over 300,000 oz. gold from CAGP, which it called Ayanfuri, mining 23 shallow oxide open pits. Perseus picked up the decommissioned project in 2006 when the price of gold was on the rise, drilling off the project to make new discoveries and build up reserves.

According to the project’s technical report, gold mineralization at CAPG occurs principally in granite bodies and classic “Ashanti-style” sediment-hosted shear zones. The granite-hosted gold mineralization is free milling and occurs in abundant, narrow quartz veining.

Years of successful drilling campaigns have increased the project’s gold resources from less than 1 million oz. in 2006 to just over 9 million oz. across all categories. As at December 2010, proven and probable mineral reserves at CAPG totalled 86.9 million tonnes grading 1.2 grams gold per tonne for 3.27 million oz. contained gold at a cut-off grade of 0.4 gram gold.

Measured, indicated and inferred resources are grouped into two different categories based on grade. A higher-grade section of the deposit has measured and indicated resources of 71.2 million tonnes grading 1.4 grams gold for 3.3 million oz. contained gold, as well as 24.4 million inferred tonnes grading 1.5 grams gold for another 1.14 million oz. contained gold, all at a cut-off grade of 0.8 gram gold. A lower-grade section using a cut-off grade ranging from 0.4 gram gold to 0.8 gram gold has measured and indicated resources of 47.1 million tonnes grading 0.7 gram gold for 1 million oz. contained gold, as well as 25 million tonnes inferred at the same grade for 538,000 oz. contained gold.

This already considerable resource stands to increase further as the company updates the resource to account for another year of drilling. Perseus expects to release its next resource update toward the end of this year. It has eight drills currently turning on the project completing 150,000 metres of drilling in 2011. The company’s stated goal is to add 500,000 oz. of reserves each year, as well as make at least one new discovery per drill season.

Perseus is also working to expand the resource at its advanced-stage Tengrela gold project in neighbouring Cote d’Ivoire. The company has already defined a resource of about 1.87 million oz. gold across all categories but currently has five drill rigs operating at the site working to increase this. Roughly 200,000 metres of drilling are planned.

In November 2010, political uncertainty and violence in the normally peaceful country brought exploration to a standstill for six months. Now, Perseus is back to improve the project’s economics and estimated mine life. The company completed a positive feasibility study for Tengrela’s main Sissingue deposit late last year showing the project has the potential to produce around 175,000 oz. gold per year over a short six-year mine life. Cash costs are expected to run similar to Perseus’s Central Ashanti operation at around US$500 per oz. gold produced, with an estimated start-up capital cost of just US$109 million.

The company’s strong portfolio of projects has led a few analysts to call it an obvious takeover target for senior gold producers. A recent Financial Post article quoted Middlefield Capital manager Dennis da Silva as saying Perseus would be a good fit for a company such as Iamgold (IMG-T, IAG-N). With plenty of cash in the bank, record-high gold prices and a beachhead in West Africa in the form of its Essakane gold mine in Burkina Faso, da Silva says Iamgold might already have its eye on Perseus, a potential 400,000-oz.-per-year producer in the next two or three years.

After raising $165 million in equity in 2010 to build Central Ashanti, Perseus is left with 425 million shares outstanding and a market cap of around $1.4 billion. Its shares closed at $3.37 on Aug. 24, at the higher end of a 52-week share price range of $2.37-$3.89.