WAF Risk/Return Analysis by ShareBeers

WAF Risk/Return Analysis by ShareBeers (22 July 2020 at 8.30am)

Price of WAF - $1.04
Price of Gold - USD1840
First Production of Gold: 10 March 2020
Commercial Production: Q2 2020
Based in Burkina Faso, West Africa

Gold Production so far:

• March 2020: 7,584oz
• April 2020: 9,040oz
• May 2020: 10,494oz
• June 2020: 13,094oz

You will note that on the May 2020 & June 2020 Production Update, every page had the heading 'RAMPING UP TO FULL PRODUCTION AT SANBRADO Q3 2020'.

However, let's look at worst case scenario not best case scenario and we use the June 2020 gold production as a guide line, we are already at 157,128oz per year (13,094 x 12 months).

Remember this is an open pit mining and not underground mining which is more lucrative and as recent as the 6 May 2020 presentation slides, WAF say we are on target for 300,000oz of gold production in the first year.

WAF Presentation NWR Virtual Small Resources Conference dated 6 May 2020

• https://www.westafricanresources.com/wp-content/uploads/2020/05/WAF-slides.pdf
• On target for +300,000 ounces gold in first full year of production atlowest quartile AISC
• Targeting average annual production 217,000oz gold over first five yearsat lowest quartile AISC

2019 DFS at US$1500/oz gold price

• Pre-tax NPV5% of US$825m and IRR of 105%
• After-tax NPV5% of US$599m and IRR of 78.8%
• 12-month post-tax payback on US$186m capex
• Low pre-production CAPEX of US$186M
  - Y1-5 AISC of ~US$590/oz
  - US$650/oz over life of mine
• DFS was based on POG US$1500 but as of today POG is US$1840

With the current global situation, you have to ask yourself is it more likely that POG will be above US$1800 or below.

My personal view, correct or incorrect, is that it will take 2-5 years for the world to come back to normal and during that time Gold will be at a decent level. Remember, finding a vaccine for Coronavirus will cause POG to drop but when the Global Financial situation with debt, inflation will take 2-5 years to recover.

Now in the worst case scenario, POG gets belted back to US$1500.

That's perfectly okay for WAF as WAF's planning and DFS was based on US$1500. Naturally, I won't be as excited as if POG stays above US1800 but it was in the DFS planning that POG US$1500.

Coronavirus Risk in Burkina Faso

First of all, there is Coronavirus Risk in any stock around the world.

It's a Global Pandemic, so in the case that there is a Coronavirus outbreak in Burkina Faso or at the WAF plant then I assume at the Plant, necessary actions will take place and it gets shutdown for 2 weeks (for example). Does that mean it's not a sound investment with WAF? Of course, not that's complete nonsense otherwise don't invest in any stock.

Remember there is a Coronavirus Risk in every stock, if if that's the concern then jump on Crypto such as Bitcoin, ETH, Doge Coin (Elon Musk loves Doge Coin).

However, for the entire Coronavirus Pandemic, Burkina Faso has 1,065 and 53 deaths:

See: https://www.worldometers.info/coronavirus/country/burkina-faso/




There is always a risk of Coronavirus, but compared to the rest of the world, including Australia, Burkina Faso is doing very well.

So when I see comments on HotCopper about Coronavirus risk for WAF, I find it amazing looking at those stats.

I'm not saying there is on risk at all, but to use that as a reason doesn't make sense.

Sovereign Risk in Burkina Faso

There will always be a Sovereign Risk with WAF but let's just say the Burkina Faso Government owning 10% WAF make it in everyone's interest for WAF to produce and sell gold.

Furthermore, WAF's Sanbrado Gold is in the safest area of Burkina Faso being in the central region.

Whatever happens, the gold is still there.



Why isn't WAF much higher than $1.04?

That's a question, I ask myself every day and this is my view:

1. People are trading with WAF and it looks like a decent trading pattern. Why wouldn't you sell at $1.04 and try to rebuy at $1.00 easy 4% and you can gain more WAF shares. I personally don't trade as I'll get the timing wrong and I'm worried that a big announcement will make the share price fly. So, if I sell at $1.04 and it flies to $1.14 or more then I'm pretty much behind the 8 ball.
2. While WAF have pretty much been the perfect stock with great management, consistent and proven gold production has not been confirmed, which I hope will be done in the next 3-6 months. Then you will see WAF fly.

For me, the Coronavirus risk and Sovereign risk posts on HotCopper is utter nonsense with reasons explained above and for me, it's just downramping of WAF.

For me the most sensible reason for WAF's share price of $1.04 compared its peers is due to the fact that production has not reached 25,000 per month nor has guidance been given.

To be fair, WAF has been in gold production for 4 months and we are mining in the Open Pit not Underground, so of course full gold production hasn't occurred.

Once that happens the WAF's share price will fly.