Westgold Resources Limited

WGX Details

Westgold Resources Limited (ASX: WGX) is an Australian gold producer with a dominant landholding in the Murchison region of the Mid-West. The company is focused on WA and operates a ‘hub and spoke model’ with 6 underground mines and several open-pit mines.

Quarterly Activities Report for the Period Ended 31 March 2021 (Q3FY21)

• Gold sales: For Q3FY21, gold sales were reported at 63,139 ounces.
• Operating cash flow remains strong: Mine operating cash stood at $56.2 million with a net mine cash flow of $12.0 million
• Higher cash: Cash grew by 9% QOQ where cash and bullion on hand was reported at $178.0 million at end of Q3FY21.
• Lower gold price: Lower gold price impacted revenue that stood at $141 million from gold sales at $2,232/oz ($167/oz lower than Q4, CY 2020).
• Capital expenditure for gold operations stood at $56.2 million, comprising $9.0 million on sustained CAPEX, $38.4 million on growth, $5.8 million on plant and equipment, and $3.0 million on exploration.

Source: Company Reports

Recent Update:

• As per the release dated 21 July 2021, the company stated that stope mining has started within the Triton North area of the South Emu-Triton underground mine at the Meekatharra Gold Operations. The South Emu and Triton mines area is spread over 8km and hosts the majority of the Reedy Mining Area’s 1.5 million oz of gold endowment.
• On 7 July 2021, the company stated that the new Bluebird Underground mine at Meekatharra has recommenced operations. This area has become the third satellite underground mine feeding high-grade ore to the company’s 1.8 Mtpa processing hub at Meekatharra

Outlook:

The company’s Big Bell underground operation extended its growing momentum in Q4FY21. The quarterly output increased from ~110,000 tons in Q1FY21 to ~185,000 tons(provisional) in Q4FY21. Further, this trend is expected to continue in Q1FY22. Moreover, the company is confident that this trend will continue with Big Bell reaching its targeted output of +80,000 tons per month by calendar year-end. Importantly, the company is expected to focus on optimizing production and in-mine processes at Big Bell.

Key Risks:

The realities of the scale of operations and size of the workforce were bought into clear focus with the COVID-19 pandemic, threatening staff, contractors, and operations. The main risks arising from the financial instruments include interest rate risk, credit risk, equity price risk, and liquidity risk.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight discount to its peer mean EV/Sales (NTM Trading multiple) considering the company is aiming to reach expected growth momentum, and the company has been trading at a discount in the past years over its peer mean. The stock declined by ~22.14% in 3 months. It has made a 52-week low and high of $1.805 and $2.980, respectively.

Considering the aforesaid facts and current trading levels, we give “Buy” rating on the stock at the current market price of $1.775 per share, down by 1.389% as on 26^th July 2021.

Aeon Metals Limited

AML Details

Aeon Metals Limited (ASX: AML) is an Australian-based mineral exploration company in the Mt Isa mineral province in North-West Queensland and the Rawbelle district in South-East Queensland. The company offers Copper, Cobalt, Gold, Lead, Zinc, Molybdenum, and Silver.

Quarterly Activities Report for the Period Ended 30 June 2021 (Q4FY21)

• Acceptance of fresh flowsheet comprising of bulk sulphide flotation and pressure oxidative leaching followed by sequential production of elevated value metal end products for 100%-owned Walford Creek copper-cobalt Project in north-west Queensland (Walford Creek Project)
• Reworked scoping study for Walford Creek Project indicating improvement in forecast economics led by the adoption of the new flowsheet
• The onset of metallurgical test-work program focused on boosting the new flowsheet
• Study timetable suggesting targeted completion of revised Pre-Feasibility Study (PFS) in Q1 CY2022
• Updated Mineral Resource Estimates (MRE) for Walford Creek Project resulting in an increase in Vardy and Marley zone copper, cobalt and zinc contained metal of around 9%, a lead metal increase of 21%, and a silver metal increase of 12%
• Opening of the CY2021 exploration program at Walford Creek Project focused on the expansion of the MRE, primarily relatively sparsely drilled 5.7km Amy zone adjacent to Fish River Fault

Key Data (Source: Company Reports)

Recent Update:

• On 23 July 2021, the company issued 86,206,898 fresh Shares at an issue price of $0.058 per share to institutional and sophisticated investors under the institutional placement statement released on Monday, 19 July 2021.

Outlook:

As per the management, the introduction of the revised flowsheet in April has resulted in renewed optimism and improving confidence in the company’s future. This resulted in the current release of a revised Scoping Study that charts a credible pathway towards project development. Similarly, the company is rushing towards the 2021 exploration program at the site, the existing MRE already contains over 44Mt with over 80% in Measured and Indicated (M&I) classifications. With over 95% M&I in the Vardy and Marley zones that contain 38Mt, the company is set to undertake detailed mine optimization and design in the current study phase.

Key Risks:

The company is exposed to interest rate risk, credit risk, equity price risk, and liquidity risk. Also, the fluctuations in the commodity prices could also impact the financial condition of the company.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

Considering the aforesaid facts, we have valued the stock using Price/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight discount to Price/Sales Multiple (NTM) (Peer average) considering the company has a lower Current Ratio at 0.14x in H1FY21 versus peer median of 1.84x and Negative Returns (ROE at -4.0% in H1FY21 and ROIC at -3.5% in H1FY21). The stock fell by ~28.2% in 3 months. It has made a 52-week low and high of $0.057 and $0.225, respectively.

Considering the aforesaid facts and current trading levels, we give “Speculative Buy” rating on the stock at the current market price of $0.056 per share on 26^th July 2021.

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 on 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 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 where-in 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: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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