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 a gold company that is engaged in exploration, development, and mining of gold assets, primarily located in Western Australia; and its flagship assets include Meekatharra gold, Cue gold, Higginsville gold, Fortnum gold, and Rover projects. The group is putting efforts to rehabilitate and restart some old mining operations, which looks difficult to many mining companies; however, WGX aims to be on track by 2020 with expected rise in production, sales and earnings. Westgold is preparing well for keeping its fundamentals strong through this journey of transformation.

Mixed Financial & Operational Performance: WGX currently owns three operating gold projects and a fourth is under refurbishment. The four processing facilities have a combined 5.5 million tonnes per annum of treatment capacity. For FY 18, WGX delivered 21% rise in the group revenue to $372 million. The company posted the operating loss after tax of $1.2 million. The company’s net assets grew by 35.4% to $405.8M. This is despite the sale of the South Kalgoorlie Operations. The company reported the loss after income tax from continuing operations of $41,387,675 compared to profit of $5,669,548 in 2017. Furthermore, the cash flows used in operating activities across the Group were lower in 2018 than that of the previous corresponding year due to the acquisition of ACM and the continuous ramp-up of CMGP being offset by the proceeds received from the sale of SKO and the sale of available-for-sale financial assets. Cash flows used in investing activities across the Group were also lower in 2018 than that of the previous corresponding year. Cash flows related to the establishment of the Starlight and Big Bell underground mines, continued capital investment in the CMGP and capital investment in ACM. Capital investments in the 2017 were offset by the cash injection received on the demerger from Metals X Limited. The company at the end of FY 18 has posted cash increase of $6,309,386 compared to $66,659,051 increase in 2017.


Financial Metrics (Source: Company Reports and Thomson Reuters)

Contribution from Central Murchison Gold Project: The Central Murchison Gold Project’s (CMGP) combined revenue rose to $195,722,443 in 2018 versus $167,631,025 in 2017 due to the ramp-up in production. The combined segment loss is of $7,086,474 in 2018 versus profit of $6,036,437 in 2017, which is due to the increased costs of ore development compared to production. During the 4th quarter, the CMGP was divided into two distinct divisions, the Meekatharra Gold Operations (MGO) and the Cue Gold Operations (CGO). WGX’s Higginsville Gold Operation (HGO) reported revenue of $94,802,011 versus $139,394,236 in 2017 and a segment loss of $13,522,152 compared to loss of $10,276,719 in 2017. This was on the back of operating issues at the process plant during the year. The company acquired the gold deposits of Polar Metals Pty Ltd for $9,080,000 to provide new future ore feed to Mt Henry gold deposits in future years. Furthermore, the company has planned that 40% of the plant capacity to be taken up by toll processing agreements in the year forward. WGX’s Fortnum Gold Project (“FGP”) delivered revenue of $69,808,741 versus nil in 2017 and the segment witnessed profit of $2,115,430 compared to loss of $212,602  in 2017. The company’s gold output rose in each quarter of the plant’s full operating year. This is in line with the planned ramp-up of gold output after the commencement of the production from the Yarlaweelor open pit and the Starlight underground mine. The company continued exploration at all operations during the year 2018 with $25,469,201 expended. Additionally, WGX acquired Australian Contract Mining Pty Ltd (ACM) on 3 July 2017 for $27,840,000 plus working capital adjustments. During the year 2018, WGX invested an additional $25,675,918 to refurbish and reinvigorate the ACM business. A goodwill impairment of $2,553,772 (2017: nil) was taken by company related to the acquisition. The contract mining and services division had internalised most of its contracts within the company on a cost re-imbursement basis. However, the company generated external revenue of $11,298,099 in 2018. The segment loss of $21,101,822 was mainly due to increased depreciation and amortisation costs. WGX in 2018 realised the profit before tax of $62,649,706 from the sales of the South Kalgoorlie Operations (SKO) to Northern Star Resources Limited.

Strategic Steps undertaken in FY 18: During the year 2018, WGX sold its South Kalgoorlie Operations and deployed the capital to boost its Murchison Region operations. South Kalgoorlie was WGX's shortest life project and its disposal upgraded the term and quality of its assets. The company witnessed four consecutive quarters of improvements in growth and production from Fortnum Gold Operations. The Paddy's Flat Underground Mine gave high grade exploration results reflecting the quality and potential of this mine. Moreover, WGX took the decision to acquire ACM, which is the major underground mining contractor, to ensure the stability in its gold output and growth. ACM was acquired at the acquisition cost of $27.8M (in cash and shares) and WGX took on an addition of $45.7M in creditor and lease commitments. At the time of acquisition, ACM was in significant distress and reflected a serious risk to WGX's overall business. After reviewing and restating the ACM accounts, ACM had posted a loss of $21.1M for the year 2018 which has impacted WGX's overall accounts. However, the company has now committed the necessary capital ($25.5M) to reinvigorate ACM's plant and equipment that is expected to deliver long term cost benefits for WGX and allow it significant flexibility in its mining operations. Additionally, WGX in 2018 had acquired Polar Metals Pty Ltd from S2 Resources Limited for $9.1M (in cash and shares) to add future growth to HGO and regional toll processing opportunities provide optimism for the project to be rebuilt to higher and more profitable levels of output. In addition, the company’s key Big Bell mine has moved closer to production in 2018 as the two year dewatering and refurbishment programs are nearing completion. WGX has invested substantial capital at the assets to ensure the successful development and long term sustainability in the coming decade.


Operational Performance (Source: Company Reports)

Company Intercepted Bonanza Gold from Paddy’s Flat: At the Paddy’s Flat mine, Meekatharra, the drilling will extend the high grade thrust structures as intersecting at a new lode position received further ‘Bonanza’ gold intercepts. Two holes were drilled approximately 50 metres below the projected location of the Avon thrust and have intersected a footwall lode position in 18VIDD127 and appear to have intersected a steeper spur vein type structure with this hole. This returned an intercept of 0.55 m at 139.8 g/t gold with core angle suggesting a steeper structure. The latest hole, 18VIDD145 that was intersected gave a strong intercept with abundant visible gold. Further, 18VIDD124 and 18VIDD127 have returned intercepts of 3 m at 78.3 g/t Au and 0.3 m at 33.1 g/t Au, respectively.

Mining and Profit Share Term Sheet Signed with Musgrave Minerals Limited: WGX has signed a non-binding term sheet with Musgrave Minerals Limited to lead to the mining and profit sharing from a number of open pit and/or underground mines which are in close proximity to WGX’s processing hubs at Tuckabianna and Bluebird. The arrangement comprises of the known resources and immediate extensions (within 100 m in any direction) of the Lena, Break of Day, Jasper Queen, Gilt Edge and Rapier South deposits. However, the company witnessed no change in title in the arrangements and the deal continues to be conditional on completion of a more detailed mine management and profit sharing agreement. WGX had acquired a 15% equity interest in Musgrave through a placement of $3.36 million for further expansion after its exploration success in the region. The template is similar to that the company has successfully deployed with other junior miners in the Kalgoorlie region where WGX played the role of manager, banker and operator for the feasibility and mining of the projects at cost basis. The revenue generated from mining will be used to reimburse the costs first with surplus funds being split equally by the parties.

Positive Outlook: WGX had revised its gold production update for calendar year 2018 to 275,000 ounces. The growth to higher gold production rates in future years continues to be intact with the commencement of production from the Big Bell Mine at CGO. The Big Bell Mine will be the group's largest individual mine with an expected steady-state mine output of one million tonnes per annum. Further, the Big Bell mine has already produced 2.6 million ounces of gold to a depth of 540 vertical metres before it was closed in 2003 when gold prices plunged. WGX has been dewatering the mine for two years and is on schedule with the refurbishment process of the historic decline and other mine services. The new development into virgin zones is expected to start in the December Quarter of 2018. Ore development is expected to re-commence in early 2019 with a 15-month build-up to full production, which will add approximately 100,000 ounces per annum to group output with the mine having an initial ore reserve of 964,000 ounces.


Production Forecast & Growth (Source: Company Reports)

ASX Query: WGX has responded to the ASX query dated 19 September 2018 regarding the change in price and rise in volume of the company’s securities. WGX is not aware of any information concerning the recent trading in its securities. WGX has identified that the rise in volume has coincided with an increase in the short position in the company's securities, which the company  believes that this may be attributable to planned re-weighting by an international gold exchange traded fund. The company has confirmed that the company is in compliance with the Listing Rules and, in particular, Listing Rule 3.1. Further,  the company has said that this response has been authorised and approved as per the published continuous disclosure policy.

Stock Performance and Analysis: Meanwhile, WGX stock has fallen 32.49% in three months as on September 25, 2018. WGX stock is currently trading at a level of A$1.24 and has a market capitalization of $437.55 million. The stock has support at $1.12 level and resistance at $1.43. WGX is currently the sixth largest domestic gold producer in Australia, with the current production of circa 275,000oz per annum of gold and output expansions currently building will take the production toward 350,000oz per annum. In the current year, the company is emerging from major growth and capital investment phases. The company expects steady-state production of all operations to be achieved in the FY 20. Further, WGX is debt free and has significant leverage to higher gold prices. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $1.24 (up 2.9% on September 26, 2018).
 

WGX Daily Chart (Source: Thomson Reuters)

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