Westgold Resources Limited

Company Overview: Westgold Resources Limited (ASX: WGX) is engaged in the exploration, development, and operation of gold mines, mainly in Western Australia. WGX’s operations include Fortnum Gold Operations (FGO), Meekatharra Gold Operations (MGO) and Cue Gold Operations (CGO). The company commenced trading on ASX on 06 December 2016.

WGX Details

Capital Raising Witnessed Solid Market Support: WGX is the explorer, developer, operator and gold mining company in the Murchison and Bryah regions with a workforce of over 1,100 people. The company mainly operate six underground mines, several open pits and three processing plants with an installed processing capacity of ~4 Mtpa throughout its tenure of over 1,300 km². Looking forward, the company is focused on enhancing its profitability mainly on the back of consistent production from Big Bell, Paddy’s Flat and Starlight, rising mined grade, leveraging its efficiencies and prudent cost management. In addition, the company has recently raised $100 million through a placement to new and existing institutional and sophisticated investors to ramp up its growth strategy. The company received exceptional support of the market for the said placement, which strongly endorses its growth plans and signals the growing momentum and the evolution of its business.

Equity Raising (Source: Analysis by Kalkine Group)

Insights of 1HFY22: The company’s operating results for 1HFY22 showcases a rising percentage of its major mines achieving or transitioning to a steady state. WGX managed to deliver two record quarters of production under challenging circumstances and would continue to do so despite the myriad challenges caused by COVID-19.

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~41.57% of the total shareholding, while the top 4 constitute the maximum holding. Ruffer LLP and Van Eck Associates Corporation are holding a maximum stake in the company at ~8.08% and ~7.21%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a debt-to-equity ratio of 0.06x as compared to the industry median of 0.16x.

Revenue & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk: The operational and financial performance of the company could be affected by the adverse movement in the prices of gold as it generates a major portion of revenue from the sale of gold.
• Cost Pressure: WGX’s business could be impacted by rising cost pressure, which has affected its recent bottom line.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company is expecting to produce gold to over 270,000 ounces at an AISC of between $1,500 – $1,700 per ounce. For 2HFY22, the company is focused on prudent cost management by undertaking active cost-savings measures, consistent production, baseline tonnage from core mines and increasing mine grades. In addition, the company is focused on future-proofing the business to ensure profitability via funding key growth projects without reliance on internal cashflow, improving and expanding asset base through exploration, resource drilling or development. For FY24, the company is aiming at gold production of over +400,000 ounces at an AISC of less than A$1,600 per ounce. WGX is focused on organic growth through expansion of existing Murchison production, accelerating new Murchison production and strategic asset, as well as enhancing Murchison and Bryah FY23 reserves.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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: The stock of WGX has a 52-week low-high range of $1.575 - $2.500, respectively. The stock has been corrected by ~4.46% in the past one month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 uncertainties and rising cost pressure, etc. For the purpose of valuation, a few peers like Regis Resources Ltd (ASX: RRL), Ramelius Resources Ltd (ASX: RMS), and Perseus Mining Ltd (ASX: PRU) have been considered. Considering the expected upside in valuation, growing production, rising topline, optimistic long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $2.060, up by ~3.000% as on 22 March 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

WGX 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 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 analysis has been achieved and 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 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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