WMC (ASX) Ann: Quarterly Activities &amp; Cashflow Report December 2018

Looking closer into this report, the results do look disappointing although I still can see that the company is not a disaster.

The production at 19 016oz is below the 20-23koz guidance, and the AISC is $1 606/oz, above the $1 350-1 550/oz guidance. This is definitely not positive as the management under-delivered.

What is more concerning is that the 2019 full year guidance is downgraded from 77-89koz at $1 350-1 550/oz to 72-80koz at $1 500-1 700/oz. That is indeed a reason for investors to be angry at management.

The cash position has declined from $3.35m to $1.51m, plus bullion of $5.3m. This leads to cash and bullion of $6.8m, down from $8.94m. Debt has increased from $20m to $22.9m. Thus, net debt has increased from $11.1m to $16.1m. The MACA $14.3m loan is a bit of a concern given the company's position now. The $1m monthly payments commence in March 2019. They will need to get Lind to provide them with funding in this case. A slight breathing space of $2.8m cash received this month from the partial sale of their cobalt-nickel project may help.

The operating side shows some positive points despite the aggregate looking rather poor. The grades have improved and the open pit tonnage shows slightly improving grades. The strip ratio has improved, though still unacceptably high. Not sure as to how much more hard rocks are being mined and processed, but with a higher AISC guidance for 2019, this may be a bit longer yet.

If you look at the cashflow statement for the quarter, there are some things to be slightly relieved about. The expected production cost was $27.6m and turned out to be $23.6m. The total cash outflows expected was more pessimistic compared to the actual outcome. The forecasted cash outflows for the next quarter is around $41m. They will need to rely on some external funding given that their revenues are around $33m from sale of almost 20 000oz of gold sales.

While many points seem to suggest this company is in big trouble, my personal view is that it is not the case. It is a disappointing performer for a while, but with rising gold price and relatively weak oil price, the company is marginally generating cash. It is on a knife-edge for sure, but it is not bleeding cash so I think at this stage, treat it as an at-the-money option.

I am not buying more at this stage and I won't be selling.