West African Resources Limited

WAF Details

Change in Substantial Holding: West African Resources Limited (ASX: WAF) is primarily involved in the production of gold. Recently, Van Eck Associates Corporation, one of the substantial holders in the company, reduced its holdings in the company from 9.83% to 8.77%.

Acquisition of Kiaka Gold Project: On 26 October 2021, WAF announced that it has entered into definitive agreements to acquire 90% of the Kiaka gold project from B2Gold Corp (‘B2Gold’) and their partner, GAMS-Mining F&I Ltd (GAMS). The addition of Kiaka to WAF’s existing operations will help it in achieving production an annual production of over 400,000 ounces by 2025. To support the initial payments under the Kiaka Transaction, WAF has announced a placement to raise up to ~A$126 million at A$1.25 per share.

Received Firm Commitments for A$126 million: On 28 October 2021, WAF notified that it has received firm commitments from institutional and sophisticated investors for Tranche 1 of the non-underwritten Placement of 101.0 million shares at a price of $1.25 per new Share to raise approximately A$126 million.

Q3FY21 Performance Update:

• For the 2021 September quarter, WAF reported total production of 81,960 ounces at an all-in sustaining cost of US$690 per ounce.
• Over the quarter, WAF generated an operating cashflow of A$110 million. At the end of the quarter, the company had cash on hand of A$130 million and A$23 million in unsettled gold bullion.

Gold Production Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Fluctuations: WAF is exposed to the risks related to the fluctuations in the prices of gold as it could impact its financials.
• COVID-19 Uncertainties: WAF is exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic as it could impact its operations.

Outlook: Looking ahead, the company is focused on increasing its gold production and reducing per-ounce costs. For FY21, WAF expects its gold production to be at the upper end of 2021 guidance of 280,000 ounces at AISC below US$800 per ounce.

Valuation Methodology: EV/Sales 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 three months the stock has provided a return of 38.11% and in the last six months. The stock is currently trading higher than the average 52-week price level band of $0.72 and $1.465. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of single digit (in percentage terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the COVID-19 pandemic and fluctuation in gold price. For the valuation purpose, peers such as Ramelius Resources Ltd (ASX: RMs), Perseus Mining Ltd (PRU), Gold Road Resources Ltd (ASX: GOR), etc. have been considered. Considering the company’s current trading level, decent returns in the last three months and six months period, key associated risks, and indicative downside in valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $1.43 as on 19 November 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia).

WAF Daily Technical Chart, Data Source: REFINITIV

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.

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