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 has emerged as a substantial pure-play gold company after the spin-off from Metals X and now comes in the top Australian gold producers’ list. The Group has recently released its upgraded development plan for the Central Murchison Gold Project (CMGP) and bolt-on acquisitions seem to be central to its improving performance. The strategic acquisition of the Tuckabianna Plant and increased combined plant capacity in the southern part of the CMGP enabled the advancement of the development opportunity in that area. Overall, the group has largely reinvested in some of its growth plans for setting its future trajectory.
 

Gold Operations (Source: Company Reports)
 
First Gold Pour at Tuckabianna: The Company recently announced that wet commissioning of the Tuckabianna Plant has been seamless, and it has poured its first gold bar. The Company has declared the transition to commercial production at Tuckabianna from 1 April 18 and the plant now serves as a processing hub for the southern part of the overall Central Murchison Gold Project. Coincidently, with the start of the gold production the Company further added 120,000 ounces of gold which were hedged into a monthly flat forward of 10,000 ounces per month at A$1,763 ounce for FY19. Now the Group’s total forward sales amount to 232,500 ounces of gold at A$1,723 per ounce. Tuckabianna is its third processing plant which is now operating in Murchison Region along with the Bluebird and Fortnum plants and its main operations at Meekatharra have been fully recovered from the severe flooding impacts witnessed in the last quarter. It continues the ramp up of gold output with the addition of its third plant. Tuckabianna plant was acquired in mid-2017 and the Group has spent past six months in refurbishing the plant so that it operates at an expected 1.2-1.4 million per annum rate and a major step-up in output is planned for 2020 when ore production from the Big Bell underground mine will dominate throughout.

Sale of South Kalgoorlie Operations: The Company announced that the sale of its South Kalgoorlie operations (SKO) to Northern Star Resources (NST) Limited has been completed. Consideration for the sale was $80 million which included $20 million in cash and $60 million in NST shares and its deemed value was $6.30. SKO contributed only 65,000 ounces to the Westgold’s group production in CY17. The Group retained its lithium royalties over the Mt Marion Lithium Mine and also retained the rights to explore and mine lithium over Location 53 and Location 59. Northern Star’s expanding Kalgoorlie operations can add immediate feedstock, life and output to the Jubilee mill. The South Kalgoorlie acquisition will deliver immediate benefits to the additional milling capacity which will enable the Company to take full advantage of the strong mining and development rates that it is generating at its Kalgoorlie operations.

Other Key Achievements: Van Eck Associates Corporation became the substantial holder of the Group as on 16 March 2018 by holding 18,367,715 shares and 5.06 per cent of the voting power. Aruma Resources Ltd entered into a binding agreement of Sale and Purchase with HBJ Minerals Pty Ltd (100 per cent owned subsidiary of Westgold Resources) to acquire 100 per cent of the Trojan Gold Project and for this Aruma will issue 6,000,000 fully paid ordinary shares in Aruma Resources to Westgold Resources as a payment for the Project. The Company executed a binding Heads of Agreement with S2 Resources Limited (S2R) to acquire its interest in the Polar Bear Project (100 per cent), in Eundynie Joint Venture (80 per cent) and in Norcott Project (100 per cent) via sale of all the shares in S2’s wholly owned subsidiary Polar Metal Pty Ltd for A$9 million. The Company agreed to form a strategic alliance with Singapore listed Golden Energy and Resources Limited (GEAR) to support the continued expansion of Westgold’s Australian Gold Operations and its further growth options.
 

Trojan Project location with Slate Dam Gold Project (Source: Company Reports)
 
Widgiemooltha Gold Project update: Mincor’s Board approved the development of the Company’s 100 per cent Widgiemooltha Gold Project (WGP) in Western Australia and completed its Enhanced Feasibility Study (EFS). The Project has a very low upfront capital requirement which can be funded from the existing cash reserves. Mincor’s high quality land-holdings continue to provide the Company with the existing opportunities for growth. A toll treatment agreement was executed with the subsidiary of Westgold Resources Limited to process the ore at Higginsville gold processing plant for 12 months which is expected to commence from July 18. Few Mining and technical services agreements were executed with Hampton Transport Services Pty Ltd and with Goldfields Technical Services Pty Ltd, respectively. It is expected that mining activities will commence soon, and mobilisation and pre-production activities are currently underway. It has scheduled 40,000t per month of the iron ore and is further developing options to increase it to 60,000 tonnes per month. These defined exploration targets provide potential for further resource expansion and mine life extension. The decision to proceed with the development of the WGP was based on the results which were achieved in the Enhanced Feasibility Study. EFS confirmed the viability of gold mining operations which were initially based to extract reserves across eight open pits at Widgiemooltha. The study included a low upfront of capital outlay of A$2.2 million and is expected that it will generate an undiscounted after-tax cash-flow at a flat A$1600/ounce gold price of A$30.7 million with a maximum cash draw-down limit of A$4.9 million. The Project is expected to recover a total of 71,700 ounces of gold over an initial mine life of two and half years.
 

Income Statement (Source: Company Reports)
 
Financial Performance: The Company released its financial accounts for the half-yearly period ending 31 December 17. It disclosed total loss (after tax) and total consolidated revenue of $713,620 and $219,185,142, respectively; whereas reported profit and revenue of $12,406,234 and $206,183,141, respectively, was noted for the same period in the previous year. Cash flow from the operating activities amounted to $19,566,947 and $48,268,209 for 2016. Revenue from the South Kalgoorlie Gold Operations amounted to $38.8 million (2016: $39.1 million) and the cost of sales was $35.7 million (2016: $36.8 million). As on 31 December 17, the Company has few commitments like it has a capital expenditure commitment of $17,745,387 which was related to plant and equipment upgradation and includes a lease expenditure commitment of $77,987,261 which was related to the tenements on which mining, and exploration operations are located. Meanwhile, 2,400,000 and 3,075,000 unlisted share options were granted to the directors and to the employees.
 

Gold Output (Source: Company Reports)
 
Stock Performance:  The Group has an inherit flexibility to vary the scope of its work and has a decent balance sheet. It is expected that it will deliver 310,000 to 340,000 oz of gold whereas it delivered 267,000 oz of gold in 2017. Company’s ROE in 2016 was (17.3 per cent); whereas in 2017, the same was 7.8 per cent. Return on Capital Invested was (9.0 per cent) in 2016 against 4.8 per cent in 2017. The stock price was down by 17.6 per cent in the past six months but managed to rise by 3 per cent in the past one month (as at April 03, 2018). The coming years can be transformational for the group given the projects achieving advanced stages while growth in gold business will continue. By looking at the overall picture, we give a “Buy” recommendation on WGX at the current market price of $1.475

 
WGX Daily Chart (Source: Thomson Reuters)

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