Company Reports

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

Perseus Mining owns three gold mines in West Africa. All were purchased as exploration licenses or development projects. In 2004, the company purchased the Tengrela project in Ivory Coast that became its 86%-owned Sissingue mine. The exploration license that became its 90%-owned Edikan mine in Ghana was bought in 2006, with its 90%-owned Yaoure mine in Ivory Coast acquired as a development project via the merger with Amara Mining in 2016. The purchase of Orca Gold in 2022 also brought the 70%-owned Meyas Sand gold project in Sudan into its portfolio.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

We retain our AUD 2 fair value estimate for no-moat-rated Perseus Mining despite a fiscal 2024 first-half result that was better than our expectations. EBITDA grew 18% to roughly USD 280 million, with unit cash costs rising less than we forecast. Net profit after tax rose 20% to about USD 165 million, or USD 10.5 cents—AUD 15.9 cents—per share. This due to stronger gold prices, which more than offset higher unit cash costs and modestly lower sales volume. Perseus will pay an unfranked interim dividend of AUD 1.25 cents per share in April. We forecast total unfranked dividends for fiscal 2024 of AUD 3 cents, roughly a 1.8% yield at current prices.

Perseus Mining owns three gold mines in West Africa. All were purchased as exploration licenses or development projects. In 2004, the company purchased the Tengrela project in Ivory Coast that became its 86%-owned Sissingue mine. The exploration license that became its 90%-owned Edikan mine in Ghana was bought in 2006, with its 90%-owned Yaoure mine in Ivory Coast acquired as a development project via the merger with Amara Mining in 2016. The purchase of Orca Gold in 2022 also brought the 70%-owned Meyas Sand gold project in Sudan into its portfolio.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

We commence coverage of Australia-based gold miners Northern Star, Evolution Mining, and Perseus Mining with fair value estimates of AUD 11.30, AUD 3.00, and AUD 2.00 per share, respectively. We initiate with no-moat and High Morningstar Uncertainty Ratings for all of these stocks. We think the shares of Northern Star and Evolution are overvalued, trading at premiums of 8% and 17%, respectively, while Perseus shares currently trade close to fair value.

Perseus Mining owns three gold mines in West Africa. All were purchased as exploration licenses or development projects. In 2004, the company purchased the Trengela project in Ivory Coast that became its 86%-owned Sissingue mine. The exploration license that became its 90%-owned Edikan mine in Ghana was bought in 2006, with its 90%-owned Yaoure mine in Ivory Coast acquired as a development project via the merger with Amara Mining in 2016. The purchase of Orca Gold in 2022 also brought the 70%-owned Meyas Sand gold project in Sudan into its portfolio.