West Wits: a positive DFS, but there is more to it
West Wits released a strongly positive DFS last Thursday, packed with a great amount of detail. While one should never be flippant or skip over the fine detail, it does take some time to digest and interpret - more time than the average punter is prepared to commit. So, our take on it from an analyst’s point of view is as follows.
The most important points to consider are;
- the Qala Shallows support a 17 year mine life
- the peak funding requirement is US$50m, with substantial capex savings due to toll treating of ore
- funding to come from a mixture of debt and equity
- 53,000 oz pa. steady state Stage 1 production rate, but this increases to 80,000 oz p.a.
- development is to commence this month with first gold in 15 months, but cash flow can come as early as February 2022, through accessing remnant ore positions that weren’t taken into account in the DFS mine plan
- these released numbers only relate to Stage 1 of a five stage program, representing only 40% of the expanded program. There is much more to come.
- steady state AISC of US$1,027/oz, including expected toll treatment charges
There are all sorts of rules about what you can say and when you can say it, as dictated by the ASX and JORC, but when the information is filtered by the regulators you can often miss the point. What you see in a single ASX release needs to be placed in context. What we have with WWI is a company that has 67% of a well-defined gold resource that exceeds 3.5 Moz, most being above a depth of 400m, with the balance of an old historic JORC resource (circa 2000) of over an additional 7 Moz still there at depth.
The Company has successfully navigated through a long- winded exercise of securing Mining Rights over a four year journey, turning a potential into a tangible asset with substantial value. It can now start to monetise this asset, being in the envious position of being able to avail itself of four or five hungry gold treatment plants that need mill feed. This minimises capital expenditure for the company and accelerates the time frame to positive cash flow.
The big picture is a trade sale
We have always been of the view that the ultimate prize for WWI shareholders is a buy-out of the project by one of the neighbouring mills. What may start out as a toll treating arrangement will end up in the company owning the mill wanting to secure 100% of the cash flow
It would be a mistake for WWI to hang out the “for sale” sign today and wait for a suitor. We have seen this scenario elsewhere in the world on many occasions, but it invariably results in the owner of the resource being hung out to dry. Shareholders get tired of waiting. WWI’s preferred strategy is to get on with the development of the assets now and start earning returns for shareholders. Making progress along this route will only enhance the value and result in a better takeout price.
So, try not to get confused by the detail and the depth of the release. Focus on the big picture because that is where the potential lies.
