Redemption, page-6

WPG Resources Ltd
Positive Tarcoola dfs, Challenger to 100%
WPG.ASX BUY
Friday 2 September 2016
 WPG has completed the full acquisition of the Challenger mine
and updated the Tarcoola feasibility study to include processing
through the Challenger plant.
 WPG’s production at Challenger, plus the processing of its 100%
owned Tarcoola reserves through the Challenger mill, will see the
production at a rate of 65kozpa to 75kozpa.
 The Tarcoola production is planned at a rate of 20kozpa over the
life of the current 3.5 year reserves.
 The 100% owned Challenger Gold Mine production is planned to
be at a rate of 50kozpa (80kozpa in 15FY) as WPG seek to focus
on grade over tonnes.
Tarcoola feasibility
 The key metrics of the feasibility are a capital cost of $4m (VSL
$5m), AISC’s of $916/oz (VSL $1,100/oz), mining over 2 years,
ore haulage 165km to Challenger and treatment over 3.5 years
plus an increase in recoveries to 95% (from 81% for the original
heap leach option). This has provided robust production of
~20kozpa of recovered gold over the current life of mine and an
NPV of $39.6m for the dfs.
 Ore reserves of 710kt at 3.1g/t Au for 71koz are a positive grade
improvement from the previous reserves for the heap leach due
to an increase in the cut-off grade.
Financials
 Our financial forecasts are unchanged as we await the first
quarter of full production at Challenger and start-up of Tarcoola in
DQ16.
 We forecast EBITDA in 2017FY of $26.1m and in 2018FY of
$39.5m which realises a cash build up to +$64m by June 2018.
 We estimate NPAT of $23.0m in 2017FY and $24.7m in 2018FY
providing for an eps of 3.0cps and 3.2cps respectively.
Recommendation and Veritas comment
 We are highly encouraged by the improved Tarcoola feasibility
which will see WPG produce over 65koz in 17FY. We continue to
recommend a BUY based on our fully diluted NAV of $0.14 per
share, which incorporates production for 4 years based on the
current Challenger M+I resource and Tarcoola reserves.
Price $0.084
Valuation $0.14
Valuation method DCF
(DCF at 10% dr)
GICS sector Metals & Mining
Market capitalisation* $m 65
Shares on Issue* m 774
Enterprise value $m 61
Previous rating BUY
* fully diluted for options, perf. rights, placement & rights issue
Year Ended June 30 15a 16e 17e 18e
Production koz 0 2 65 75
Cash Costs - AISC $/oz 0 na 1,266 1,183
Sales revenue $m 0 3 113 133
EBITDA $m -3 -3 26 39
EBITDA margin % na na 23 30
Reported NPAT $m -3 -3 23 25
Adjusted NPAT $m -3 -3 23 25
EPS adj c -1.2 -0.8 3.0 3.2
EPS adj growth % na 7
DPS c 0.0 0.0 0.0 0.0
Franking % 0 0 0 0
PER x na na 2.8 2.6
Dividend yield % na na na na
EV/EBITDA x -1.7 -12.0 1.2 0.0
ROA % na na 113 203
ROE % na na 44 32
Debt / Debt + equity % na na na na
WPG v's ASX Small Resources
Source: IRESS
Piers Reynolds
+61 (0) 3 8601 1196
[email protected]
- 2 -
WPG Resources Limited Share Price: $ 0.084 Valuation $ 0.14
Profit and Loss (A$m) Market Measures
Year ending June 2015a 2016e 2017e 2018e Year ending June 2015a 2016e 2017e 2018e
Sales 0.1 3.1 113.3 133.4 EPS adj. (¢) -1.2 -0.8 3.0 3.2
Other Revenue 0.0 0.0 0.0 0.0 EPS Growth (%) na na 7
Op. costs 0.0 2.4 79.0 84.9 PER (x) na na 2.8 2.6
Royalty 0.0 0.1 3.2 4.1 CFPS -1.9 -1.3 3.2 4.4
Exploration Writeoff 0.0 0.0 0.0 0.0 CF Multiple (x) na na 2.6 1.9
Corporate & Other 3.6 3.3 5.0 5.0 DPS (¢) 0.0 0.0 0.0 0.0
EBITDA -3.4 -2.6 26.1 39.5 Div. Yield (%) na na na na
Dep/Amtz 0.0 0.0 3.3 5.1 EV 5.7 31.8 32.1 -0.7
EBIT -3.4 -2.6 22.8 34.4
Net Interest 0.1 0.1 0.2 0.8 Profitability Ratios
Pre-Tax Profit -3.3 -2.6 23.0 35.2 Year ending June 2015a 2016e 2017e 2018e
Tax Provision 0.0 0.0 0.0 10.5 Return on Equity (%) na na 44.2 32.2
Net Profit/(Loss) -3.3 -2.6 23.0 24.7 Return on Assets (%) na na 113.1 203.4
Abnormals 0.0 0.0 0.0 0.0 NPAT / Sales (%) na na 20.3 18.5
Reported Net Profit -3.3 -2.6 23.0 24.7 Debt / (Debt + Equity) (%) na na na na
EBITDA / Sales (%) na na 23.0 29.6
Balance Sheet (A$m)
Year ending June 2015a 2016e 2017e 2018e Valuation dr @ 10% dr @ 5%
Cash 1.3 4.2 31.7 64.5 A$m A$ps A$m A$ps
Receivables 0.1 2.6 5.6 5.6 Challenger/Tarcoola 94.9 0.12 105.6 0.14
Fixed assets 7.4 8.2 20.9 18.5 Exploration 10.0 0.01 10.0 0.01
Other assets 1.1 0.3 0.3 0.3 Options 3.5 0.00 3.5 0.00
Total Assets 10.0 15.2 58.4 88.9 Forward sales 0.0 0.00 0.0 0.00
Creditors 0.6 3.0 6.0 6.0 Cash/Liquids 7.6 0.01 7.6 0.01
Borrowings 0.0 0.0 0.0 0.0 Total Borrowings 0.0 0.00 0.0 0.00
Other liabilities 0.4 0.4 0.4 6.3 Corporate/Other -7.1 -0.01 -7.6 -0.01
Total Liabilities 1.1 3.4 6.4 12.3
Net Assets 8.9 11.8 52.0 76.6 TOTAL 108.9 0.14 119.1 0.15
Share capital 25.6 31.1 48.3 48.3
Retained earnings -16.7 -19.3 3.6 28.3 Production
Shareholders Funds 8.9 11.8 52.0 76.6 Year ending June 2015a 2016e 2017e 2018e
Challenger/Tarcoola (koz) 0 2 65 75
Cashflow (A$m) Other (koz) 0 0 0 0
Year ending June 2015a 2016e 2017e 2018e Other (koz) 0 0 0 0
Sales Revenue 0.0 3.1 113.3 133.4 Attrib. Production (koz) 0 2 65 75
Less Outflows 0.0 -2.4 -79.0 -84.9 Cash Costs - AISC (A$/oz) 0 na 1266 1183
Prod. costs in exc. sales -2.4 -2.6 -8.2 -9.1 Total Costs (A$/oz) 0 na 1317 1250
Net interest 0.1 0.1 0.2 0.8
Income tax paid/Other 0.1 0.0 0.0 -4.7 Price Assumptions
Operational Cash Flow -2.1 -1.8 26.3 35.6 Year ending June 2015a 2016e 2017e 2018e
Exploration -1.9 -1.5 -2.0 -2.0 Exchange Rate (A$/US$) 0.84 0.72 0.71 0.71
Capex 0.0 0.0 -5.0 -0.8 Gold ($US/oz) 1224 1156 1238 1250
Asset (Purchases)/Sales 0.0 0.8 -9.0 0.0 Gold ($A/oz) 1468 1602 1743 1774
C/Flow from Investing -1.9 -0.7 -16.0 -2.8
Dividends paid -0.1 0.0 0.0 0.0 Attributable reserves & resources (@ June 16)
Debt (Repay)/Borrowings 0.0 0.0 0.0 0.0
Equity Raised 0.0 5.5 17.2 0.0 mt g/t mt g/t
Other 0.0 -0.1 0.0 0.0 Challenger mine 0.6 4.7 1.4 4.9
C/Flow from Financing -0.1 5.4 17.2 0.0 Tarcoola 0.9 2.6 0.9 2.6
Cash at Beginning 0.0 1.3 4.2 31.7 Tunkillia 12.3 1.4 0.0 0.0
Net Increase/(Decrease) -4.1 2.8 27.5 32.8 Total - WPG 13.8 1.6 2.3 4.0
Cash at end 1.3 4.2 31.7 64.5 Attributable Ounces (koz) 695 290
Total Reserves + Resources 0.7Moz @ 1.6g/t Au
Directors & Management Major Shareholders
Chairman Bob Duffin Bob Duffin Sensitivities - eps % change
Managing Director Martin Jacobsen Jalinsons Pty Ltd 2015a 2016e 2017e 2018e
Exec. Director Gary Jones Diversified Minerals P/L Gold Price +/- 10% 0.0% -8.7% 34.5% 38.5%
Non-Ex. Director Len Dean Exchange Rate +/- 10% 0.0% 7.9% -45.1% -22.3%
Non-Ex. Director See Yong Lim Cash Costs +/- 10% 0.0% 6.7% -34.3% -13.7%
Non-Ex. Director Dennis Mutton Source: Company reports & Veritas Securities estimates