WAF valuation

The FS has an 11 year mine life but the problem WAF have isthat the project in its current form is basically uneconomic after 6 years(the project is left processing open pit material and their recovery drops off from ~95% to ~85% after 6years - not my assumption, this is all directly from the NI 43-101). The UG is the real driver of the whole thing. They probably would havebeen better off building a mill that was 1/5th the size and just process 300ktof UG high grade for 5 years.

If you dump the FSnumbers into a cashflow model, WAF still look over valued at 24c… Admittedly I have increased the UG mining unit cost (up from US$58/t to US$70/t - I think the assumptions were a little optimistic for a small UG operation using cement backfill) and the processing costs (up from US$12.50/t to US$20/t). I have also applied a more realistic discount rate of 10.9% that reflects West Africans current position. The 5% used in the NI 43-101 neither aligns with interest charges on the debt funding package (7.75%) or the WACC. 

In its current form the NPV of future cashflows to WAF is around ~US$130m or WAF NPV ~US$100m when you take into account corporate costs over the life of the project.

The UGlooks like it will get better at depth. If WAF can keeppunching holes into M1 at depth like they have been doing (15m @ half an ounce,~220m below the reserve) and they can pull that into their reserve to deliver 300kt of high grade for ~10 years you could safely assume the the NPV would double. 

If you were a company that could do adeal now while WAF is getting pummelled in the market, and you take a view thatthe gold price was going higher, you could make a decent go of it. For the general population, if the share price drops to ~20c and you have that same outlook on the price of gold, get on board and pray they spend the $15m they have pencilled in for exploration between now and 2020 drilling out M1 at depth.