Ausdrill has announced it has won a contract through its wholly owned African subsidiary AMS, to provide open pit mining services to Perseus Mining at one of its mines (Edikan) in Ghana.
The contract is for 3 years with an option to extend for a further 2 years, and is expected to generate USD223mln in revenue over 5 years, or about USD45m per year. Based on current total revenue for the company, this is expected to generate an additional 7% of revenues.
Perseus Mining is an ASX-listed West African gold producer with a market capitalisation of $152.7m. The Edikan gold mine in Ghana has 5.25 million ounces of Measured and Indicated gold resources, including reserves of 2.36 million ounces of gold, and 2.17 million ounces of Inferred gold resources. At its most recent half results, Perseus outlined that gold production at the Edikan gold mine in Ghana was 100,016 ounces at an all-in site cost of USD988/oz. Based on the reserves and production costs, Edikan is producing at cash flow positive levels given gold prices are at around USD1,200/oz which is supportive for the contract.
While no guidance has been provided on EBITDA contribution, the news is moderately credit positive but we would want to see additional positive momentum to have conviction that a turnaround has occurred for the business. Further discussion on Ausdrill is available in the following article Ausdrill reports on 1H15. Ausdrill’s predominant exposure to gold (about ~2/3 of revenue is generated from gold mining activities) provides a degree of mitigation to the ongoing risks in the mining services sector, given that the gold price has shown resilience versus other commodity price plunges.
The equity markets have responded positively to the news, with the share price is up 7% this morning following the announcement.