Westgold Resources Limited

Company Overview: Westgold Resources Limited (ASX: WGX) is a gold exploration company. WGX is one of the dominant explorer, developer, operator and gold mining company in the Murchison and Bryah region. The company currently operate six underground mines, several open pits and three processing plants with an installed processing capacity of ≈4 Mtpa across its tenure of over 1,300 km.

WGX Details

Focus on Cost Savings to Aid Business Growth: The Q3FY22 proved as another solid quarter of production, wherein the company witnessed decent operational momentum. The company remains focused on increasing operational delivery with the help of rigorous capital management and continuous cost optimisation that enhances profitability. During the quarter, WGX finished a $100 million placement to finance key growth projects and made two new key appointments to its Board. Looking forward, the company would be focused on increasing mined grade through disciplined design and execution as well as a decrease in all-in sustained cost (AISC) through active continuous cost-saving initiatives and improving productivity.

Production Trend (Source: Analysis by Kalkine Group)

Insights of Q3FY22: The below picture provides an overview of business performance in Q3FY22:

Quarterly Updates (Source: Analysis by Kalkine Group)

Business Highlights: The following picture gives an idea of business progress:

Business Highlights (Source: Analysis by Kalkine Group)

1HFY22 Summary: The below image showcases the company’s performance during the half-year ended 31 December 2021:

Financial Highlights (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form ~50.58% 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 recorded a debt-to-equity (D/E) ratio of 0.06x in 1HFY22 as compared to the industry median of 0.17x.

Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

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

Outlook: Looking forward, the company will be focused on enhancing profitability and productivity. The company would also be focused on increasing production with baseline tonnage from core mines supported by secondary mines. For FY22, the company anticipates production of over 270,000 oz @ AISC A$1500-1700/oz. The company would work on consistency in operational delivery through grade, ounces, and cost management. In addition, the business would be focused on enhancing free cash flow with increased operating margin and return on investment. The company’s priority also includes future-proofing the business through organic and inorganic growth.

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 below its 52-week low-high average of $1.127 - $2.500, respectively. The stock has been corrected by ~9.16% in the past 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 valuation, a few peers like Wiluna Mining Corporation Ltd (ASX: WMC), Ramelius Resources Ltd (ASX: RMS), Perseus Mining Ltd (ASX: PRU), and others have been considered. Considering the expected upside in valuation, record gold production, rising achieved gold prices, 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 $1.210, up by ~3.862% as on 14 June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 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 subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

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

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.