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

FY18 is expected to be a year of consolidation for Westgold Resources Ltd with support coming in from ramp-up in production across its key operating mines wherein the group has made significant capital investment over last couple of years.

Strong December Quarter Performance: Westgold Resources Ltd (ASX: WGX) has posted 25% increase in the group gold sales quarter on quarter to 73,317 ounces for the December quarter of 2017 at an average achieved sale price of A$1,656/oz. The production of gold also increased to 68,094 ounces but got 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 as 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’s was A$1,420/oz for the December quarter, which took the rolling 12 month to A$1,307oz. Additionally, for the December quarter, the Group EBITDA is of $19.84 million and the closing cash & working capital is of A$31.6 million. In addition, the gold hedging at the end of the December quarter is at 86,250 ounces at an average price of A$1,650 per ounce. The gold pre-pay arrangement stood at 18,750 ounces and amortises at 1,250 ounces per month.
 

Quarterly Gold Production and A$ Costs (Source: Company Reports)
 
Fortnum gold project highlights: The group reported that their process plant at Fortnum mine (FGP) delivered a 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 is 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. Plant head grades averaged 1.44 g/t and recoveries were 89.3%. Cash operating costs (C1) rose to A$1,293/oz during the quarter as compared with the rolling 12-month estimate of A$1,065/oz, while the rise was reflecting the lower production output. Quarterly estimates of AISC was A$1,390/oz as compared with the rolling 12-month estimate of A$1,165.
 

FGP Performance (Source: Company reports)
 
Assets growth within the Central Murchison Gold Project: For the CMGP, the company had formulated the revised development plan and brought the Tuckabianna Plant into the strategy. Therefore, a 10-year operational plan for processing plants (Tuckabianna as well as Bluebird) 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, and this brings the group nearer to production from what it becomes a flagship mine at over 100,000 ounces per annum for 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, while underground mining commenced at Jack Ryan mine at Reedy’s (CMGP) during the December quarter.

Option deal over lithium assets: The group 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 finish the due diligence and get the shareholder approval, and WGX receiving taxation advice to its satisfaction. After finishing the disinvestment, WGX expects to distribute a majority of the Consideration Shares on a pro-rata basis to its shareholders. Moreover, upon the completion of the overall deal, WGX shareholders would collectively hold over 30% of Triton’s share capital and will get the right to nominate an appointee to the board with the skill set to help steer the company through construction and into production.

New Strategic Investor: During the December quarter, WGX has welcomed a new strategic investor, which is the Singapore based Gold and Energy Resource Ltd (GEAR) to the company 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. The first tranche was settled in December 2017, the second tranche has settled subsequent to the end of the December quarter and the final tranche was due to settle at the end of January.

Agreement with Southern Gold Ltd: The group 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 will have to bear all financing and operating risk. Further, WGX would have the right and flexibility to devise its own mine plan. WGX will pay Southern Gold $1.5 million within 5 business days for mining and a production payment on a $/troy oz of gold. South Kalgoorlie Operations (SKO) continued its operations during the quarter with 50% of the plant capacity being allocated to the 12-month toll processing agreement with RNC minerals (ending 30 June 2018). SKO reported a steady quarter with gold output of 12,711 oz at a cash operating cost (C1) of A$1,088/oz taking the rolling 12-month output to 65,186 ounces at a C1 cost of A$914/oz. The AISC for the quarter was A$1,291/oz leading to the rolling 12-month AISC to A$1,075/oz.
 

SKO performance (Source: Company reports)
 
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. Thus, Cannon ore wedge can benefit WGX and Southern, and will add ounces to SKO’s output.

Stock Recommendation: The shares of WGX have fallen 10.3% in the last three months as on February 06, 2018 on the back of volatile gold prices. On the other hand, the group’s hedging activities, positive prospects of key mines and rising production would support their stock movement. We think that the fall in the stock price offers a buying opportunity, and based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $1.585
 

WGX Daily Chart (Source: Thomson Reuters)

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