Global Urbanization And Safe-Haven Demand Will Support Multi-Asset Expansion

Key Takeaways

• Operational excellence, project delivery, and expanded production capacity position WAF for accelerated revenue, cash flow growth, and enhanced long-term earnings power.
  
• Leadership in ESG, health and safety, and unhedged gold exposure strengthens margins, access to capital, and attractiveness for regional growth opportunities.
  
• Heavy reliance on gold mining in politically unstable Burkina Faso, rising costs, and environmental pressures threaten profitability, cash flow, and future growth opportunities.

Catalysts

Engages in the mining, mineral processing, acquisition, exploration, and project development of gold projects in West Africa.

• While analyst consensus expects the Kiaka ramp-up to have a meaningful impact on output, the record of delivering the mine ahead of schedule and under budget, combined with a rapid grid power connection and robust backup generation, indicates Kiaka could exceed upper-end production guidance sooner, providing a step change to group revenues and accelerating free cash flow growth beyond current forecasts.
  
• Analysts broadly agree that multi-asset production will stabilize earnings, but WAF's aggressive move to owner-operated mining at Sanbrado and rapid resource conversion drilling signal not only margin uplift from lower operating costs, but also a potential material reserve and mine-life extension, significantly lifting long-term net asset value and future earnings power.
  
• West African Resources' industry-leading health and safety performance and demonstrated operational discipline position the company as a preferred partner for future regional consolidation or joint ventures, which could drive accretive growth and further improve operating margins.
  
• The global environment of persistent geopolitical tension and rising demand for gold as a safe-haven asset is poised to prolong elevated gold prices, directly boosting WAF's realized revenues given its unhedged sales strategy and strong leverage to spot pricing.
  
• WAF's successful execution and ESG track record in Burkina Faso enhances access to lower-cost capital and broadens long-term investor demand, which should lower the company's cost of capital and enable continued reinvestment for sustainable production and higher long-term earnings.

West African Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on West African Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming West African Resources's revenue will grow by 53.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 30.7% today to 40.3% in 3 years time.
• The bullish analysts expect earnings to reach A$1.1 billion (and earnings per share of A$0.93) by about August 2028, up from A$223.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.6x on those 2028 earnings, down from 13.6x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.16%, as per the Simply Wall St company report.

West African Resources Future Earnings Per Share Growth

Risks

• The company's reliance on gold as its sole commodity exposes it to long-term risks from global decarbonization efforts and decreased investor interest in gold as a safe haven, which may exert downward pressure on gold prices and negatively impact revenue growth and future operating cash flows.
  
• West African Resources operates solely in Burkina Faso, a country with a history of political instability and security threats, making their assets highly vulnerable to geopolitical disruptions that could interrupt production, increase operating costs, or impair assets, with negative consequences for future earnings and net margins.
  
• The company's expansion into owner mining at Sanbrado and the ramp-up of the Kiaka project carry substantial execution risks, including potential delays in securing reliable grid power, equipment bottlenecks, and underestimating costs; any setbacks could lead to cost overruns and operational underperformance, thereby eroding future profitability and weakening cash generation.
  
• Mining costs are rising, with recent quarters already showing increased site sustaining costs driven by higher royalty rates, power generation expenses, and inflation in contractor and labor costs; if industry-wide cost inflation persists, net margins could compress further, especially if gold prices decline.
  
• Intensifying scrutiny on environmental and social performance in emerging markets could lead to higher compliance and community engagement expenses or delays in regulatory approvals, raising sustaining capital requirements and jeopardizing access to global capital, which would limit both liquidity and future investment capacity.

Valuation

• The assumed bullish price target for West African Resources is A$4.7, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of West African Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.7, and the most bearish reporting a price target of just A$3.3.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$2.6 billion, earnings will come to A$1.1 billion, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of A$2.67, the bullish analyst price target of A$4.7 is 43.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.