West African Resources Limited

Company Overview: West African Resources Limited (ASX: WAF) is a gold mining company focussed on creating shareholder value through the acquisition, exploration and development of gold projects in West Africa. WAF has 100% interest in Sartenga copper-gold-molybdenum project, which has a large tonnage porphyry system. WAF also holds 90% interest in the Sanbrado Gold Project, which is located 90km east-southeast of Ouagadougou, and it covers an aggregate area of 116km².

WAF Details

Q4FY21 Operational Highlights:

• Exceeded FY21 Production Guidance: For the quarter ending 31 December 2021 (Q4FY21), the company reported gold production of 87,324 ounces at an all-in sustaining cost of US$721/oz, taking the total FY21 production to 288,719 gold ounces at an average AISC/oz of US$796, exceeding the company’s annual guidance of 250,000 to 280,000 ounces.
• Gold Sales Update: Over the quarter, the company sold 86,516 gold ounces at an average price of US$1,812 per ounce, bringing 2021 full year gold sales to 295,215 ounces at an average price of US$1,808.
• Debt Repayment: Over the quarter, the company fully repaid Taurus debt and offtake fee arrangements. At the end of the quarter, the company had no senior debt and positive net cash position of US$137 million.

Gold Production Trend (Source: Analysis by Kalkine Group)

Change of Director’s Interest: On 3^rd February 2022, one of the company’s Directors, Rodney L Leonard, who holds an indirect interest in the company, acquired 22,277 ordinary shares of the company via exercise of performance rights. On 1 Feb 2022, Stewart Findlay, one of the company’s Directors, acquired 50,863 ordinary shares via exercise of performance rights.

Gold Operations Continue in Burkina Faso: Following recent political developments in Burkina Faso, WAF recently assured that its staff and contractors are safe and the company’s Sanbrado Gold Operations (Sanbrado) in Burkina Faso are continuing to operate as usual.

Key Metrics: For H1FY21, the company reported gross margin of 52.8%, up from 46% in H1FY20. Net margin for H1FY20 stood at 27.5%, up from 6.4% in H1FY20. ROE for H1FY21 stood at 32.8%, up from 3.7% in FY20. Debt to equity ratio for H1FY21 stood at 0.7x, up from 3.71% in FY20.

Debt to Equity Ratio Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 44.25% of the total shareholding, while the top four constitute the maximum holding. Van Eck Associates Corporation and L1 Capital Pty Ltd. are holding a maximum stake in the company at 12.53% and 5.49%, respectively, as also highlighted in the chart below:

Key Risks:

• Gold Price Fluctuations: The company is exposed to the risks related to the fluctuations in the price of gold as it could impact its financials.
• COVID-19 Uncertainties: The restrictions associated with COVID-19 lockdowns could disrupt the company’s operations.

Outlook: The company is now focused on progressing the Kiaka feasibility study and ESIA updates and commencing mobilisation of site early works. With its acquisition of the advanced Kiaka gold project, the company aims to be a +400,000 ounce per year producer by 2025. The company is planning to release production and cost guidance for 2022, and updated resources and reserves for Sanbrado and Toega later in Q1FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by ~14.91%. The stock is currently trading higher than the average 52-week price level band of $0.72 - $1.465. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight premium to its peers considering the acquisition synergies, updated resources base, and higher production figures. For the valuation, peers such as Ramelius Resources Ltd (ASX: RMS), Silver Lake Resources Ltd. (ASX: SLR), Gold Road Resources Ltd (ASX: GOR) and others have been considered. Considering the company’s decent production performance, expected benefits from recent acquisitions, modest outlook, and indicative upside in valuation, we give a “Speculative Buy” rating on the stock at the closing market price of $1.17 as on 8 February 2022.

WAF Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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