Company Overview: Westgold Resources Limited is engaged in exploration of minerals. The principal activity of the Company is operating gold mines in Australia. The Company’s projects include Central Murchison Gold Project (CMGP), Higginsville Gold Operations (HGO), South Kalgoorlie Operations (SKO), Fortnum Gold Project (FGP), Tuckabianna Project and Rover Project. The CMGP is located in the Murchison Goldfields of Western Australia around the regional towns of Cue and Meekatharra. HGO project includes an operating underground and open pit gold operation in the Norseman region of Western Australia. SKO includes the HBJ underground mine, a number of open pits and the Jubilee Mill. The FGP is located in the western Bryah Basin approximately 150 kilometers northwest of Meekatharra with approximately 1 million tone-per-annum carbon-in-leach (CIL). The Rover Project is a postulated undercover repetition of the prolific Tennant Creek goldfield located 80 kilometers to the north-east.
 

WGX Details

Westgold Resources Ltd (ASX: WGX) is emerging as a new name at the international gold market and is the sixth largest domestic gold producer in Australia yielding about 300,000oz per annum of gold and is tracking well to expand over 400,000oz per annum. The group is debt free and has leverage to high gold prices. The recent agreements and acquisitions are expected to drive the performance in the future along with the growth in gold outcome.
 

Gold Operations (Source: Company Reports)
 
First Half FY18 Financial Performance: Westgold Resources delivered 6.31% increase in the revenue from ordinary activities to $219,185,142 for the first half of FY18. However, the company posted 105.75% fall in the profit to the net loss of $713,620 in 1HFY18. The cash flows used in investing activities across the group totaled $79,499,894, which was higher than the previous period (2016: $56,848,728), reflecting the refurbishment of the Tuckabianna processing plant and the initial development phase for the Big Bell, Jack Ryan and Starlight undergrounds.
 

Consolidated Financial Performance (Source: Company Reports)
 
Maiden drilling program commences at Liontown’s second Australian lithium project: Liontown has an Agreement with WGX, whereby it has secured the rights to lithium (and related metals) for the Buldania Project. Westgold has the right and priority access to all other metals. Further, WGX will be paid $2 per tonne for any lithium ore mined and 1.5% of the gross sales receipts. Lately, Liontown has commenced its maiden Reverse Circulation (RC) drilling program at the Buldania Lithium Project. The initial Buldania program comprised of 3,000-3,500m of Reverse Circulation (RC) drilling. They are targeting beneath previously reported high-grade rock chip samples (up to 4.2% Li₂O), outcropping spodumene-related lithium mineralization. The drilling is estimated to take 3-4 weeks with first assays due in late March 2018. Moreover, the project is also close to major road and rail infrastructure, with direct links to the Port of Esperance, and is critical to the mining and production of bulk commodities such as spodumene concentrates. 

Bought S2 Resources’ Polar Bear Projects: WGX has executed a binding Heads of Agreement with S2 Resources Limited (S2R) to acquire its interest in the Polar Bear Project (100%), Eundynie Joint Venture (80%) and the Norcott Project (100%) (together, the WA Gold Projects) through the sale of all of the shares in S2’s wholly owned subsidiary Polar Metals Pty Ltd for A$9 million. As per the Agreement, WGX will pay S2R $3 million in cash plus and allot four million fully paid ordinary shares which are subject to a voluntary six-month escrow period. S2R will retain rights to nickel in the titles. Moreover, these acquisitions nicely fit into WGX’s Higginsville Project and provide near time ore sources for the plant from mining of the Baloo deposit and further exploration with a view to development of the nearby Monsoon, Bindy, Nanook and Ear Lobe prospects. The discovery of these deposits by S2R and the significant discovery of the Invincible Mine by Goldfields Ltd to the north has opened this region as a new province of gold discoveries, previously under-evaluated for its gold potential. WGX will benefit from being a major landholder in the region with one of the few operating process plants in place to commercialize.

Westgold Tops up Gold Hedging: WGX for the December quarter has posted 25% increase in the group gold sales (quarter on quarter) to 73,317 ounces at an average achieved sale price of A$1,656/oz. The production of gold also increased to 68,094 ounces, however, was hampered slightly due to the structural issues within the crushing circuit at HGO and throughput at the Fortnum plant. The group cash operating costs (C1) were A$1,176/oz for the December quarter compared with the rolling 12-month C1-cost of A$1,119/oz, which shows the higher operating cost of development ores and the unbalanced nature of open pit strip ratios. The Group AISC was A$1,420/oz for the December quarter, which took the rolling 12-month to A$1,307oz. In addition, the recent rise in gold prices enabled the group top up its hedge position while adding 60,000 ounces at A$1,710 per ounce. This takes WGX’s total hedge position to 123,750 ounces at A$1,678 per ounce, that completely amortises in calendar 2018 with monthly deliveries. Further, WGX has 14 months of its gold pre-pay to be delivered at 1,250 ounces per month (total 17,500 ounces).
 

Quarterly Gold Production and A$ Costs (Source: Company Reports)
 
Asset growth within the Murchison Group of Projects: The group’s Fortnum process plant witnessed its second quarter of operation and mechanical activities. The company had resolved the physical issues that have hindered its consistent operation. The Starlight underground mine was de-watered, and refurbishment was 90% complete and the same now ready for production in the ensuing quarter. The waste pre-strips on the Yarlaweelor North and South Pits were completed and first ore was produced. Moreover, at the Central Murchison Gold Project (CMGP), the company’s revised development plan was on track and the Tuckabianna Plant was brought back into the strategy. Therefore, a 10-year operational plan for both processing plants was devised. Further at the CMGP, the long process of dewatering the Big Bell to enable rehabilitation to start got completed. The rehabilitation of the decline has started and infrastructure to re-establish this mine was established, which brought the group nearer to production from what it becomes a flagship mine at over 100,000 ounces per annum in the long term. Overall, Tuckabianna Plant is ready for commissioning before the end of the March quarter and has works on-time and under budget. The revised development plan for CMGP has delivered 10-year plan for both Bluebird and Tuckabianna Plants. Starlight decline at Fortnum is now fully refurbished and development into the ore reserve is about to start. Big Bell mine has been de-watered, and refurbishment of decline commenced. However, a freak storm recently had impacted operations at CMGP. The rainfall has forced the temporary closure of the Bluebird Mill and created flooding within the Paddy’s Flat underground mine, the newly started Jack Ryan underground mine and nearby open pit mines. The storm had little impact in the Tuckabianna area and the company expected to commence dry commissioning of the Tuckabianna mill in February, well ahead of time and under budget.

Option deal with Triton Minerals Limited:WGX had signed an option deal with Triton Minerals Limited to divest Westgold’s package of lithium assets and royalties in Western Australia. This is for a consideration of 357 million fully paid ordinary shares in Triton. The completion under the option agreement is upon the condition on Triton to complete the due diligence and obtain the shareholder approval, and WGX receiving taxation advice to its satisfaction. However, despite the potential for Lithium in the tenure, the management of both the companies have mutually agreed not to proceed with the transaction given that the satisfactory and timely completion appears unlikely.
 

Gold Output (Source: Company Reports)
 
New Strategic Investor: During the December quarter, WGX had welcomed a new strategic investor, which is the Singapore based Gold and Energy Resource Ltd (GEAR) forming an alliance that will assist WGX with further growth in all its business activities as well as new opportunities. GEAR is a subsidiary of Indonesian conglomerate, the Sinar Mas Group. As per the agreement, GEAR has agreed to subscribe for a 10% diluted position in the capital of the company in three tranches due to statutory reasons. The subscription agreement was done at A$1.885/share, which is a premium to the market price. As at 31^st December 2017, the first tranche of this transaction had been completed with the issue of 16,900,000 shares. The two remaining tranches were said to be completed by 30^th January 2018.

Acquisition of Australian Contract Mining: The acquisition of Australian Contract Mining, which is a Private Specialist Underground Mining Contractor has lowered the company’s unit costs and the acquisition has inherent flexibility to change and vary scopes of work. Moreover, with the acquisition, there is a stronger balance sheet for external/third party works. It will also lead to Open Pit & Underground mechanized mining, and diamond drilling fleets.

Agreement with Southern Gold Ltd: WGX has signed a new agreement with Southern Gold Ltd for the underground development phase at Southern Gold’s Cannon gold mine, near Kalgoorlie, WA.As per the agreement WGX is required to have a 5 year right-to-mine over a defined 1 km radius on mining license M25/333 which essentially covers the Cannon Gold deposit and WGX to have all financing and operating risk. Further, WGX will have the right and flexibility to devise its own mine plan. For mining this, WGX will pay Southern Gold $1.5 million within 5 business days and a production payment on a $/troy oz of gold.

Tribute Mining Agreement for Cannon Mine: WGX’s wholly owned subsidiary, HBJ Minerals Pty Ltd (HBJ) has signed the mining tribute agreement over Cannon Mine area. This deal covers an area within a 1 km radius of the Cannon mine on Southern’s ML25/333 for a five-year period. Moreover, the Cannon open pit was successfully mined by HBJ as per the mining and profit sharing agreement. This new agreement is actually an extension to that agreement whereby the underground extension of that ore system will be mined exploiting the wedge of ore beneath the Cannon Pit and its down-plunge extensions into the wholly-owned Georges Reward prospect that will be mined in conjunction. Both ore systems remain open down-dip and down-plunge. As per the agreement, HBJ has the right to all ores mined, which will be separately accounted for, and all production will be attributable to HBJ.

Stock Recommendation: Meanwhile, WGX stock has fallen 22.47% in six months as on March 06, 2018. The group has otherwise improved its Return on Equity from (17.3%) in 2016 to 7.8% in 2017 which is inching towards the industry median. With the recent developments and efforts on performance improvements, the stock is gaining traction and has been up 1.6% on March 07, 2018. New acquisitions at modest costs are expected to help the group witness some boost in the coming years. We give a “Buy” recommendation on the stock at the current price of $1.56
 

WGX Daily Chart (Source: Thomson Reuters)

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