Westgold Resources Limited (ASX: WGX)

Westgold Resources Limited (ASX: WGX) is a Western Australia-based gold explorer, developer, and miner focused on the Murchison and Southern Goldfields regions. The company holds tenure over more than 3,200 km² and operates six underground mines along with five processing plants, boasting an installed processing capacity of approximately 6.6 million tonnes per annum. With a focus on sustainable mining practices, Westgold is committed to maximising the potential of its extensive resource base while contributing to the local economy.

Recommendation Rationale - SELL at AUD 3.115

• Trading Near the Resistance: WGX share price has surpassed its R1 level recommended on 26 September 2024. Therefore, share price can face resistance at the current levels.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/EBITDA, Price/Earnings, and Price/Cash Flow) are higher than the median of the metals & mining sector.
• Technical Standpoint: The 14-day RSI of ~72.82 suggests that the stock is in overbought territory, indicating upward momentum. While this is a positive signal, it may also face resistance soon, as overbought conditions often lead to a potential price pullback or consolidation.
• Decline in Gold Production: FY24 gold production stood at 227,237 ounces, down from 257,116 ounces in FY23.
• Risks – WGX is exposed to fluctuations in gold prices, which can greatly affect profitability and operational sustainability. Additionally, the company faces operational risks related to mining activities, such as regulatory changes, geological challenges, and potential cost overruns. 

WGX Daily Price Chart

Valuation Methodology: Price/Earnings Approach (FY June'25E) (Illustrative)

WGX is expected to trade at a premium due to upgraded production guidance for FY25, anticipated peak investment in FY24, and other factors. For conducting the valuation, the following peers have been considered: West African Resources Ltd (ASX: WAF), Emerald Resources NL (ASX: EMR), and Resolute Mining Ltd (ASX: RSG).

Considering that the stock has surpassed its R1 level, market uncertainties, and risks associated, the share price can witness resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 3.115, as of 18 October 2024, at 02:00 PM AEDT.

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 18 October 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement. 

Technical Indicators Defined: -

Support: A level at which 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 at which 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: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.