West African Resources Limited

WAF Details

Geological Model Confirmed at Toega Deposit: West African Resources Limited (ASX: WAF) is a gold mining company with 90% interest in Sanbrado Gold Project, located in Burkina Faso. On 20 September 2021, the company announced the issue of 500,000 ordinary fully paid shares. On 8 September 2021, the company notified that the resource definition drilling at the 1.3Moz gold Toega deposit has confirmed the geological model intercepting extensive zones of free-milling gold mineralisation. Notably, the company has intercepted 79m at 2 g/t gold and 56m at 1.6 g/t gold in drillhole NAK21-DD014.

H1FY21 Result Highlights:

• Rise in Revenue: For the half-year ended 30 June 2021, the company reported total revenue of $266.77 million, up 354% on pcp, due to 411% more ounces sold, offset by an 11% lower average AUD gold price.
• Improved Bottom Line: Profit after tax for H1FY21 stood at $73.257 million, up from $3.75 million in pcp.
• Decline in Net Debt: As at 30 June 2021, the company had net debt of $88.43 million, down from net debt of $131.3 million as at 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in Gold: The company is exposed to the risks related to the fluctuations in the prices of gold as it could impact its financials.
• Foreign Currency Risk: WAF is exposed to the risk related to the fluctuations in the foreign currency exchange rate.

Outlook: For FY21, the company expects its total production to be in the range of 250,000 to 280,000 ounces gold at an AISC of US$720 – US$800/oz. Further, the company is focused on advancing its drilling programs at M1 South and Toega targets.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last one month, the stock has corrected by 5.44% and is currently trading lower than the average 52-week price level band of $0.72 and $1.23, offering a decent opportunity for accumulation. The stock has been valued using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the decline in current ratio, uncertainties surrounding the impact of COVID-19 pandemic and gold price fluctuations. For the purpose of valuation, peers such as SSR Mining Inc (ASX: SSR), OceanaGold Corp (ASX: OGC), Resolute Mining Ltd (ASX: RSG), etc., have been considered. Considering the improved financial results in H1FY21, decent outlook, current trading level, valuation, and associated risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.935, down by ~4.103%, as on 20 September 2021.

WAF Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above. 

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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