Westgold Resources Limited

Company Overview: Westgold Resources Limited (ASX: WGX) is engaged in the exploration, development, and operation of gold mines, primarily in Western Australia. The company's operations include Fortnum Gold Operations (FGO), Meekatharra Gold Operations (MGO) and Cue Gold Operations (CGO).

WGX Details

Focus on Growth Strategies to Aid Future Business Performance: The growth strategy of the company revolves around becoming larger and improving profitability. For that, the company would be focused on optimising and expanding operations to improve profitability and shareholder returns. As of 30 June 2021, the total mineral resource stood at 111 million tonnes at 2.22g/t containing 7.9 million ounces. The Ore Reserve were 29 million tonnes at 2.36g/t containing 2.2 million ounces. As announced on March 14, 2022, the company finished placement to new and existing institutional and sophisticated investors and raised A$100 million (before costs), which would be used to ramp up Murchison and Bryah’s growth opportunities.

1HFY22 Highlights: During the half-year ended 31 December 2021, the company experienced decent performance and paid a maiden cash dividend of 2.0 cents per share, and as a result, it returned $6 million to shareholders.

Financial Summary (Source: Analysis by Kalkine Group)

Business Updates: The below picture gives a broad overview of the valuable business updates:

Business Updates (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~41.24% 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: The company consistently maintained low debt levels. Its debt-to-equity ratio stood at 0.06x in 1HFY22 as compared to the industry median of 0.12x.

Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company is exposed to risks arising from the uncertainties in relation to the COVID-19 pandemic, which has resulted into increased labour costs and pressures as well as supply chain disruptions
• Volatility in Gold Price: WGX’s future performance could be impacted by the adverse movement in the prices of gold as it is a major revenue generation stream.
• Change in Climate: The company’s operational performance could be affected by the extreme change in climate, which may pause its operations temporarily.

Outlook: The company’s recent equity raising of $100 million is likely to aid its future growth strategy. Out of the said $100 million, $70 million would be used for the expansion of Murchison Projects, and the company would use $10 million each for Bryah Expansion Projects, Regional Corporate Targets and General Working Capital and Costs of the Placement. During 2HFY22, the company would seek prudent cost management, consistent production, increased mined grade and milling optionality. For FY22, the company expects gold production of over 270,000 oz @ AISC A$1,500 – 1,700. For FY22 and FY23, WGX would be focused on consistency in operational delivery, increasing free cash flow and future-proofing the business via organic and inorganic growth. For FY24, the company anticipates gold production of over +400,000 oz @ AISC of less than A$1,600. The company has scheduled to release March 2022 quarter results on 28 April 2022.

Growth Pillars (Source: Analysis by Kalkine Group)

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 is trading near its 52-week low level of 1.535, offering a decent opportunity for accumulation. The stock has been corrected by ~17.39% 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, considering the COVID-19 uncertainties and volatility in the gold prices, etc. For the purpose of valuation, a few peers like Wiluna Mining Corporation Ltd (ASX: WMC), Ramelius Resources Ltd (ASX: RMS), and Perseus Mining Ltd (ASX: PRU) have been considered. Considering the expected upside in valuation, rising revenue, recent capital raising, growing production, 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 market price of $1.555, down by ~11.142% as on 26 April 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.

Disclaimer

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