Westgold Resources Limited

Company Overview: Westgold Resources Limited (ASX: WGX) is a gold production company in Australia that operates various underground mines and several open-pit mines providing ore to three processing hubs across the Murchison. The company’s Murchison operations comprise three operating segments, Fortnum Gold Operations (FGO), Meekatharra Gold Operations (MGO), and Cue Gold Operations (CGO). The company was listed on ASX on 6 December 2016.

WGX Details

2021 AGM Highlights: On 26 November 2021, Westgold Resources Limited (ASX: WGX) held its 2021 Annual General Meeting (AGM), wherein the management highlighted that it has achieved record production in Q1FY22 (quarter ending 30 September 2021). Some of the key points highlighted at the AGM are as follows:

• Decent Performance in FY21: Despite the impact of COVID-19 pandemic, WGX reported 4% YoY growth in gold sales, and witnessed a 16% YoY growth in revenue. Further, the company reported a total EBITDA of $252 million for FY21, which is 37% higher than the previous year. EPS of WGX grew by 110% YoY to 18.16 cents per share.
• Paid Maiden Cash Dividend: Prompted by the improved financial metrics, the company has paid a maiden cash dividend of 2.0 cents per fully paid share for FY21.
• Strategy Update: For FY22, the company is focused on maintaining operational delivery with major mines moving to steady state and new mines coming online.
• Adoption of New Constitution: All six resolutions that were presented at AGM were passed via a vote of shareholders. Notably, one of the resolutions was for the replacement of the Company Constitution. At the AGM, the company also adopted a new Constitution.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Metrics: EBITDA margin for FY21 stood at 44.5%, up from 33.5%. Net margin for FY21 stood at 13.4%, up from 7% in FY20. Current ratio for FY21 stood at 1.88x, slightly up from 1.87x in FY20, demonstrating that the company has improved its ability to pay short-term obligations. Cash cycle days for FY21 stood at 14.5 days, down from 16 days in FY20.

Liquidity Profile and Net Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 45.21% of the total shareholding, while the top four constitute the maximum holding. Ruffer LLP and Van Eck Associates Corporation are holding a maximum stake in the company at 9.07%, and 8.99%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Latest Developments:

• Drill Testing Of 14 New Targets: In an exploration and growth update provided on 18 November 2021, WGX informed that it has shortlisted 35 targets for priority evaluation and 14 deemed immediate priority for drill testing. WGX believes that is strongly positioned to make the next major discovery in this prolific goldfield.
• Withdrawal of Gascoyne Takeover Offer: On 9 November 2021, WGX informed that after receiving ASIC consent, it has withdrawn the offer in relation to the 100% of the shares in Gascoyne Resources Limited.

Key Risks:

• COVID-19 Uncertainties: WGX is exposed to the risk related to the effects of COVID-19 related travel restrictions and labour availability, as they could impact the company’s operations.
• Fluctuations in Gold Price: WGX is also exposed to the risks related to the fluctuations in the gold price as it could impact its financials

Outlook: Looking ahead, the company is focused on accelerating exploration and growth activities to feed the broader company project pipeline. WGX is also planning to pursue growth opportunities within the general Murchison region to leverage either its existing milling infrastructure or defined Mineral Resources. With an exploration budget of $14 million for FY22, WGX seems well placed for the discovery of new, greenfield gold resources across Westgold tenure. For FY22, the company expects its production to be over 270,000 ounces with an AISC of between @ A$1,500 – A$1,700 Oz.

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 six months the stock has corrected by ~14.54% and is currently trading lower than the average 52-week price level band of $1.575-$2.890, offering a decent opportunity for accumulation. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic and risks related to availability of labour. For the valuation purpose, peers such as Regis Resources Ltd (ASX: RRL), Dacian Gold Ltd (ASX: DCN), Perseus Mining Ltd (ASX: PRU), and others have been considered. Considering the decent production performance in Q1FY22, improved financial performance in FY21, positive exploration update, current trading level and valuation, we give a “Buy” rating on the stock at the closing price of $1.845, down by ~0.271% as on 7 December 2021.

WGX Daily Technical Chart, Data Source: REFINITIV

Note, the purple color line at the bottom of the chart indicates RSI (14-day period).

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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.

Disclaimer

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