Westgold are in a bit of trouble IMO. They are trying to grow their way out of low grades and low margins. That won’t work long term because the further underground they progress, the higher the cost and lower productivity, while the grades stay the same. St Barbara had the same problem and they are on their knees. Westgold will toll treat if the margins are higher than for the feed being displaced, which is not hard because they lose money at bluebird mill.
Big Bell will probably go OK although it’s 100km from Bluebird mill and won’t compete with locally sourced feed.
I can’t see them filling Bluebird mill. The grades that they are feeding are just not high enough. They are generating no economic value from processing an tonne at 2.4g/t Au that has already cost $1100 an ounce to mine. Don’t be fooled by AISC at $2100. AISC excludes corporate costs, expansion and exploration. These items add up to $700 Oz, so they are not making any money at AISC of $2100 Oz.
Westgold desperately need higher grade, otherwise the future is dim. The market know this, which is why their EV is circa $250million for a 200kOz producer. Maybe they will find some high grade with the drill, maybe not? They may also get lucky with the price of gold going up. In either case there is a big economic imperative for them to acquire some higher grade mill feed.
GBR Price at posting:
8.5¢ Sentiment: Buy Disclosure: Held
