Gold: Producer PERSEUS MINING LTD (PRU) Sissingue hits form post quarter. Yaoure ready to go. PRU.asx Accumulate

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1 Gold: Producer PRU.asx Accumulate Perseus Mining Ltd (PRU) PERSEUS MINING LTD (PRU) Sissingue hits form post quarter. Yaoure ready to go. Perseus produced 68kozs in the Dec 2018 qtr; we had forecast 73kozs. Edikan contractor shift raises one-off cost Edikan produced 50.1kozs, compared to Hartleys forecast of 52kozs. Head grade was up to 1.16 g/t but met recovery of 77.5% was down on the previous qtr and our assumption. The last of the Fetish carbonaceous material has been processed and recovery has since returned to the 87% target. Edikan unit mining costs were up from US$3.91/t mined to US$4.20/t, mainly due to the one-off cost of demobilising African Mining Services in favour of a single mining contractor effective 1 January. AISC at Edikan was accordingly US$1151/oz, higher than the US$1090/oz in our model. Moving ahead in Cote d Ivoire. Sissingue production of 17.9kozs was also less than our forecast (21kozs). The operation did not manage to make up time and waste movement lost in October due to wet weather, affecting tonnes and grade processed. Met recovery was maintained at 95% in transition/hard rock above the project plan of 91%. Sissingue AISC of US$776/oz for the Dec qtr was in line with our forecast, despite the disruption. At 25% fresh ore component in the blend, unit costs remain below Company LOM estimates. Perseus says Sissingue has been producing gold at 120% of budget since the end of the December quarter. Yaoure financing is still in progress. Perseus more than doubled its hedge position during the quarter, to 275kozs in preparation for debt facility stipulations. Finalisation of US$200M debt facilities and receipt of the Yaoure Exploitation Permit are expected and required before late March 2019 to keep current timetables of development, which are planned around the weather. There s AISC and there s AISC Although Perseus reported costs appear high relative to Australian peers, all capital expenses, including exploration, at the operating centres are included in the Company s AISC (all in site cost). Net cash at the end of the quarter was US$16.4M (US$65M cash+bullion and US$48M bank debt); up US$1.0M over the quarter. The Company estimates June 2019 half production of kozs at US$ /oz AISC. Hartleys forecasts for the June 2019 half stand at 140kozs at US$950/oz. Heading in the right direction All up a sub-par production quarter but with no damage to forward numbers. Post quarter comments from the Company suggests Sissingue has handled the transition to hard rock operation well, which would tick off another risk element and set the June 2019 half up nicely. Edikan has entered a new phase, in which our model shows margins improving, to US$ /oz clear, after capital expenses and exploration, across 190kozspa. Yaoure provides the growth. Maintain Accumulate recommendation with a 60cps valuation and 12 month price target. Share Price Valuation $0.66 Price Target (12 month) $0.66 Brief Business Description: +250kozpa gold producer and project developer of open pit operations in Ghana and Cote d'ivoire. Hartleys Brief Investment Conclusion Cashflows from Edikan and Sissingue contribute to the crucial development at Yaoure. Chairman & MD Sean Harvey (Non-Executive Chairman) Jeff Quartermaine (Managing Director) Top Shareholders Franklin Resources, Inc 7.7% Van Eck Associates Corporation 5.1% Ruffer LLP 5.0% Company Address Level 2, 437 Roberts Rd Subiaco WA, 6008 Issued Capital - fully diluted Market Cap - fully diluted Cash and bullion (31 Dec 18) Debt (31 Dec 18) EV EV/Resource oz EV/Reserve oz Prelim. (A$m) FY18 FY19e FY20e Prod (koz Au) Op Cash Flw (A$M) Norm NPAT (A$M) CF/Share (cps) EPS (cps) P/E Dividend (cps) Yield (%) Mt g/t Moz Resources Reserves Feb-18 John Macdonald Resource analyst Perseus Mining Ltd Ph: E: john.macdonald@hartleys.com.au 23 Jan 2019 $ m 1180m A$393m A$448m A$92m A$68m A$369m A$51/oz A$107/oz A$ M Jun-18 Sep Jan-19 Volume - RHS Source: IRESS PRU Shareprice - LHS Sector (S&P/ASX SMALL RESOURCES) - LHS Perseus contributed in country costs to site visits by the analyst in Ghana and Cote d' Ivoire in November Hartleys Limited ABN (AFSL ) 141 Page St Georges 1 of 10 Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Further information concerning Hartleys regulatory disclosures can be found on Hartleys website

2 SUMMARY MODEL Perseus Mining Ltd PRU Recommendation Accumulate Market Information Directors Company Information Company Information Share price $0.38 Sean Harvey (Non-Executive Chairman) Level 2, 437 Roberts Rd Market Capitalisation $448m Jeff Quartermaine (Managing Director) Subiaco WA, 6008 Cash Dec 2018 $92m John McGloin (Non-Exec Director) Debt Dec 2018 $69m Colin Carson (Exec Director) Issued fully paid shares 1036m Sally Ann Layman (Non-Exec Director) Issued Capital (fully diluted) 1180m EV $425m Top Shareholders m shares % Valuation $0.60 Franklin Resources, Inc month price target $0.60 Van Eck Associates Corporation Spot Valuation $0.53 Australian Super Profit & Loss Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Ruffer LLP Net Revenue A$M Dimensional Entities Other income/forwards A$M Working capital change A$M -17 Group Production Summary Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Total Costs A$M Ore processed Mt EBITDA A$M Strip ratio w:o margin 26% 23% 28% 30% 42% Head grade g/t Depreciation/Amort A$M Total Gold produced kozs EBIT A$M Net Interest A$M Group Costs Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Foreign exchange A$M Cost per milled tonne US$/t Pre-Tax Profit A$M Cash costs after royalty US$/oz Tax Expense A$M Sustaining capital US$M NPAT A$M All in sustaining costs (AISC) US$/oz Abnormal Items A$M Growth capital US$M Minority interests EBITDA / tonne milled ore A$/t Reported Profit A$M P&L cash costs A$/oz AISC A$/oz Balance Sheet Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Cash A$M Prices Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Other Current Assets A$M AUDUSD Total Current Assets A$M Gold US$/oz Property, Plant & Equip. A$M Gold A$/oz Investments/other A$M Tot Non-Curr. Assets A$M Hedging Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Total Assets A$M Hedged sales kozs Short Term Borrowings A$M Price A$/oz Other A$M Total Curr. Liabilities A$M Sensitivity Analysis Long Term Borrowings A$M Valuation FY20 NPAT Other A$M Base Case Total Non-Curr. Liabil. A$M Sens -10% +10% Sens -10% +10% Total Liabilities A$M US Gold price +/-10% 32% % AUDUSD +/- 10% 9% % Net Assets A$M Production +/-10% 36% % Operating Costs +/-10% 23% % Cashflow Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Operating Cashflow A$M Unpaid Capital Forwards A$M Expiry year No. (M) $M Avg ex. % ord VAT refund/pmt A$M Jun % Increase in receivables A$M Jun % Minority interests A$M Jun % Interest & Other A$M Total % Operating Activities A$M Reserves & Resources June '18 Mt g/t Au Koz Mkt cap/oz Property, Plant & Equip. A$M TOTAL RESOURCE , Exploration A$M Edikan (meas., ind., inf) ,276 Asset sales A$M Sissingue (meas., ind., inf) Investments A$M Yaoure (Ind., inf) ,418 Investment Activities A$M INCLUDES TOTAL RESERVE , Borrowings A$M Edikan open pit + u/g ,567 Dividends A$M Sissingue open pit Equity A$M Yaoure open pit ,517 Financing Activities A$M Hartleys model June '18 Mt g/t Au Koz Mkt cap/oz Exchange rate effect A$M TOTAL INVENTORY Net Cash Change A$M Edikan open pit Sissingue open pit Shares Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Yaoure open pit Ordinary Shares - End M Diluted Shares - Weighted M Share Price Valuation (NAV) Risked Est. A$mst. A$/share 90% Edikan after tax 7% DR Ratio Analysis Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun % Sissingue after tax, 8% DR GCFPS A % Yaoure after tax, 8% DR CFR X Exploration, all sites EPS A Corporate overheads PER X Cash & bullion DPS % Debt Yield % Tax benefit Interest Cover x - na Hedging ROCE % -4% -5% 2% 3% 40% Option/equity dilution ROE % -3% -5% -1% 1% 26% Total Gearing % 7.3% 7.1% 28.3% 18.1% 12.7% Source: Hartleys Research Page 2 of 10

3 EARNINGS CHANGES Fig. 1: Hartleys earnings changes from November Jun Jun Jun 21 old new % diff old new % diff old new % diff Hartleys Production (koz) % % % Implied price received (A$/oz) % % % Total cash costs (A$/oz) % % % Net Revenue % % % Total Cash Costs % % % EBITDA % % % - margin 23% 23% 0% 27% 28% 2% 30% 30% 2% Depreciation/Amort % % % EBIT % % % Net Interest % % % FX effect % % % Pre-Tax Profit % % % Tax Expense 0 0 n/a 0 0 n/a % NPAT % % % Abnormal Items 0 0 n/a 0 0 n/a 0 0 n/a Minority % % % Profit Attrib % % % capex + exploration % % % Net cash % % % Dividends Per Share % 0 1 n/a % Source: Hartleys Research PRODUCTION AND COST FORECASTS Fig. 2: Hartleys production forecasts Group Production Summary Unit Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Edikan Ore processed Mt Strip ratio w:o Head grade g/t Met. Recovery Gold produced kozs Sissingue Ore processed Mt Strip ratio w:o Head grade g/t Met. Recovery Gold produced kozs Yaoure Ore processed Mt Strip ratio w:o Head grade g/t Met. Recovery Gold produced kozs Company Ore processed Mt Strip ratio w:o Head grade g/t Total Gold produced kozs Source: Hartleys Research Page 3 of 10

4 Fig. 3: Hartleys cost forecasts Group Costs Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Edikan Cost per milled tonne US$/t Cash costs after royalty US$/oz Sustaining capital $M All in sustaining costs (AISC) US$/oz Growth capital US$M Sissingue Cost per milled tonne US$/t Cash costs after royalty US$/oz Sustaining capital US$M All in sustaining costs (AISC) US$/oz Growth capital US$M Yaoure Cost per milled tonne US$/t Cash costs after royalty US$/oz Sustaining capital US$M All in sustaining costs (AISC) US$/oz Growth capital US$M Company Cost per milled tonne US$/t Cash costs after royalty US$/oz Sustaining capital US$M All in sustaining costs (AISC) US$/oz Growth capital US$M Source: Hartleys Research VALUATION The accompanying Perseus model takes into account available information including Perseus projected group production guidance given periodically. Modelled inventories and costs are based primarily on Perseus estimates, with timing and cost differences. Gold price and exchange rate forecasts are set out in summary tables on page 2. Edikan, Sissingué and Yaouré are each valued by after tax discounted cash flow methods at 7%, 8% and 8% real, after tax discount rates respectively. Tax, royalty and minority interest payments are included according to agreements in place for Edikan and Sissingué. Yaouré fiscal arrangements are assumed to mirror those at Sissingué. Nominal exploration value of A$68M (7cps) is included to account for all of Perseus exploration prospects outside of modelled inventory. Corporate overheads of A$15M per year, are assumed to At 36cps Perseus trades at a 40 % discount to Hartleys NAV. PRICE TARGET The price target is based on a discounted cash flow valuation of the projects, an informal estimate of exploration assets value and nominal assessment of Perseus other assets and liabilities as at December Hedging arrangements are valued separately from the mining assets. Using January 2019 spot price gold and currency price assumptions ($US1278/oz, AUDUSD 0.713) held flat, Hartleys valuation is 66 cps. Using Hartleys base case commodity and currency forecasts, set out in the summary table, the base case NAV estimate is 60cps. SISSINGUÉ (PRU 86%) Perseus re-estimated Sissingué s remaining reserves and costs in October Page 4 of 10

5 Ounces produced in the life of mine plan are 357kozs. Sissingué is Perseus first development project in Côte d Ivoire. Average all in site costs for the LOM plan are US$756/oz. The first six months of production were from oxide material only. Rainfall in September and October 2018 affected production due to oxide ore saturation requiring treatment of lower grades. The transition to fresh ore occurred in the December 2018 quarter. A proportion of oxide ore will be maintained in the mill schedule throughout the current LOM plan, keeping throughput at Mtpa. Reconciliation from reserve to mill has been good. Metallurgical recovery, averaging 96% to December, has exceeded the 91% target, which remains in force as a LOM estimate. Average annual gold production for FYs is 86kozs and AISC average over the same period is US$740/oz. Since late 2016 Perseus has executed its plans at Sissingué consistently. Through achieving returns, acquiring skills and knowledge, and honouring commitments in Côte d Ivoire, Sissingué is an effective launchpad for Yaouré. The team that built Sissingué is now working on Yaouré. Supply logistics, site security and community interaction plans developed and applied successfully at Sissingué will be applied at Yaouré. Later, operating personnel trained at Sissingué will be available to Yaouré. Fig. 4: Sissingué pit and tailings storage facility, November 2018 Source: Hartleys EDIKAN (PRU 90%) Implementation of Edikan s new LOM mine plan coincided with the shift to a single earthmoving contractor from 1 January Earth movement volumes have been slowing since March 2018, with the aim of bringing ore mining rates in line with processing rates, instead of the previous strategy of completing mining early and preferentially process higher grade ore. The grade control confusion caused by the rehandling and the costs of rehandling the ore proved problematic. As a consequence, Page 5 of 10

6 Perseus is shifting to definition of a single in-pit ore category, mining rates matched with or less than treatment rates and direct tip of most of the ore feed into the crusher. The changes allow a two fifths reduction of the mining fleet. Target mill throughput will also slow down from 6.7Mtpa to 6.5Mtpa. Perseus plans for Edikan, outlined In August 2018, anticipate output of 200kozspa and US$950/oz average AISC from 2018 to The cost estimate assumed a mid price of US$1.01 per litre for diesel on site and the contractor rate in place before the re-tender concluded in October In the September quarter Perseus drilled 3 holes at the Esuajah Gap prospect next to the Ayanfuri village and the Esuajah North pit. Two of the holes intersected a mineralised granite and associated quartz vein stockworks in overlying sedimentary rocks. Intercepts include 123m at 1.3 g/t from surface and 89m at 1.2 g/t from 294m down hole. Mineralisation is similar in style to Esuajah South (19.5Mt at 1.7 g/t for 1.1Mozs in resource), which is currently outside the LOM plan because of its proximity to the town. Gold grade tends to improve toward surface. Drilling continued into the December quarter under a limited permit for operating near town limits. Any new discovery at Esuajah Gap would bring Esuajah South into calculation because of the shared development costs. Mining of each of Esuajah South and Esuajah Gap would require relocation of part of the Ayanfuri Village, similar to the relocation program from Esuajah North in which Perseus built over 200 new homes and community buildings east of the town in 2015 and 2016, at a cost of over US$30M. Given the potential to add +1Mozs and more than five years to Edikan s mine life Perseus is keen to pursue the Esuajah Gap discovery, on the basis that it could realistically justify the cost of community relocation. Fig. 5: Edikan geology and Esuajah Gap location map. Page 6 of 10

7 Source: Perseus, September 2018 Fig. 6: School at new Ayanfuri, part of the community relocation program Source: Hartleys, November 2018 Fig. 7: Street scene at Ayanfuri, November 2018 Source: Hartleys The Yaouré fe asibility study was completed in November Since then the costs of construction have been confirmed and an underground m ine scoping study has been completed. YAOURÉ (PRU 90%) Perseus completed the Yaouré DFS in November The initial reserve estimate is 27Mt at 1.76 g/t Au (1.52Mozs contained) in open pit designs with an average strip ratio of 5:1. 87% of reserves are in the CMA pit design, which is essentially a continuous lode system that will be mined first. Milling and CIL facilities capable of processing CMA s hard ores at 3.3Mtpa will enable average annual gold production of 215kozs. Average AISC are estimated at US$760/oz over the initial 6 year project life. Perseus has estimated Yaouré s development capital cost at US$263M including contingency and a pre-strip. The figure was confirmed to +/-10% in engineering studies completed October Revisions to reserves and LOM plan estimates incorporating recent drilling are due by late Perseus October 2018 schedule anticipates earthworks to start in February 2019 and first gold production in December The Company awaits grant of an Exploitation Permit for Yaouré that would trigger payment of compensation to landholders and Page 7 of 10

8 fencing of the project area. Negotiations over a Mining Convention for the project would also follow, to set out the applicable fiscal terms. Perseus has a 5 year tax holiday at Sissingué and certain VAT concessions that will also apply to Yaouré. The CMA pit design is 1.3km long and extends to a maximum depth of 200m below surface. In November 2018 Perseus scoped the potential to mine the down dip extensions from underground. Prior to Perseus 2016 acquisition of the project the CMA main lode beneath the pit design was drilled on 50x50m spacing (83 diamond holes and 19 RC holes), within a strip 1.3km strike length and to an average 200m down dip extent. Because the lode dips at degrees the maximum vertical depth of the drilling is about 100m below the pit limits. Perseus inferred a resource of 3.0Mt at 6.2 g/t (595kozs) from the data and concluded that subject to further work, an underground operation developed in conjunction with the open pits, could displace open pit ore in the latter years of the current mine plan and add considerable value to the project. Perseus estimates the cost of a drill out program and associated studies (prefeasibility studies) preparatory to underground mining, at US$15.5M. The CMA main lode is open down dip and along strike to the north. Near mine exploration prospecting at Yaouré contends with extensive regolith and shallow transported cover. Drilling into bedrock has been limited to the resources and their extensions. Perseus is aircore drilling possible north east splays off the CMA thrust under 20m of cover, to test continuity of widespread mineralisation already intersected over 2km strike. Other priority targets lie with 5km of the resources, to the southwest (Sayikro), west (Govisou) and south-east. Fig. 8: View over Yaoure and CMA, looking west, November 2018 Source: Hartleys Perseus had US$16M net cash/bullion at the end of December On our base case model we have about US$42M in free cash flow (post exploration, pre debt servicing) becoming available in FY2019. Exercise of A$44c strike price warrants before June 2019 would raise US$44M. Page 8 of 10

9 RISKS Key assumptions and risks for valuation Assumption Risk of not realising assumption Risk to valuation if assumption is incorrect Comment Gold price, currency Exploration, re-investment High Medium Industry ave. - high Medium Perseus forward looking AISC profile is close to the industry average, and hedging (25% of 2 yrs) is modest. Perseus may invest a portion of its cash and future free cash flows in exploration and/or other mineral asset acquisitions. Valuation assumes that future exploration and investments achieve acceptable returns. Cost forecasts Medium Medium Costs at Edikan have a historical basis. Cost inflation in Ghana and Côte d Ivoire has the potential to affect operating costs. Compensating effects are assumed through exchange rates. Exploration asset value Medium Low Subjective value is attributed to exploration assets. West African socio-political stability Conclusion Source: Hartleys Research Low High Events in Ghana and Côte d Ivoire have shifted towards stability for regional mining operations in the past 20 years. Foreign investment in mining is a significant contributor to the respective economies. Cost and production risks are high but reducing as operations meet projected targets. Perseus faces industry average risks with respect to gold price and currency. Regional risks are mainly associated with community costs. Page 9 of 10

10 HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research Mike Millikan Resources Analyst John Macdonald Resources Analyst Paul Howard Resources Analyst Aiden Bradley Research Analyst Oliver Stevens Research Analyst Michael Scantlebury Junior Analyst Janine Bell Research Assistant Corporate Finance Dale Bryan Director & Head of Corp Fin. Richard Simpson Director Ben Crossing Director Ben Wale Director Stephen Kite Director Scott Weir Director Scott Stephens Associate Director Rhys Simpson Associate Director Michael Brown Executive Registered Office Level 6, 141 St Georges Tce Postal Address: Perth WA 6000 GPO Box 2777 Australia Perth WA 6001 PH: FX: info@hartleys.com.au Note: personal addresses of company employees are structured in the following manner: firstname.lastname@hartleys.com.au Hartleys Recommendation Categories Buy Accumulate Neutral Reduce / Take profits Sell No Rating Speculative Buy Share price appreciation anticipated. Share price appreciation anticipated but the risk/reward is not as attractive as a Buy. Alternatively, for the share price to rise it may be contingent on the outcome of an uncertain or distant event. Analyst will often indicate a price level at which it may become a Buy. Take no action. Upside & downside risk/reward is evenly balanced. It is anticipated to be unlikely that there will be gains over the investment time horizon but there is a possibility of some price weakness over that period. Significant price depreciation anticipated. No recommendation. Share price could be volatile. While it is anticipated that, on a risk/reward basis, an investment is attractive, there is at least one identifiable risk that has a meaningful possibility of occurring, which, if it did occur, could lead to significant share price reduction. Consequently, the investment is considered high risk. Institutional Sales Carrick Ryan Justin Stewart Simon van den Berg Digby Gilmour Jayme Walsh Veronika Tkacova Wealth Management Nicola Bond Bradley Booth Adrian Brant Nathan Bray Sven Burrell Simon Casey Tony Chien Tim Cottee David Cross Nicholas Draper John Featherby Ben Fleay James Gatti John Goodlad Andrew Gribble David Hainsworth Murray Jacob Jack Johns Will Langley Gavin Lehmann Shane Lehmann Steven Loxley Andrew Macnaughtan Scott Metcalf David Michael Jamie Moullin Chris Munro Michael Munro Ian Parker Matthew Parker Charlie Ransom Heath Ryan David Smyth Greg Soudure Sonya Soudure Dirk Vanderstruyf Samuel Williams Disclaimer/Disclosure The author of this publication, Hartleys Limited ABN ( Hartleys ), its Directors and their Associates from time to time may hold shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice mentioned in publications to clients. Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. Page 10 of 10