Kiaka And Sanbrado Projects Will Tap Rising Global Gold Demand

Key Takeaways

• Accelerated project timelines and strong operational flexibility could enable earlier and higher-than-expected production, revenue, and cash flow growth.
  
• Significant new exploration, favorable gold market dynamics, and strong community engagement position the company for improved earnings, lower risk, and enhanced long-term valuation.
  
• Heavy geographic and regulatory concentration, operational transition risks, reliance on asset expansion, ESG pressures, and gold market shifts threaten long-term stability and profitability.

Catalysts

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

• Analyst consensus expects Kiaka to lift production and revenue when it comes online, but with the project tracking ahead of schedule, operational flexibility from an 86,000 ounce stockpile, and the use of backup power solutions, there is potential for an accelerated ramp-up and for 2025 and 2026 gold output to outperform even bullish estimates, resulting in outsized incremental revenue and cash flow far earlier than anticipated.
  
• While analysts broadly agree that grade control and consistent mineralization at Kiaka will support an efficient startup, the newly revealed thickness and continuity of near-surface ore could drive sustained high recoveries and lower early mining costs, supporting materially higher net margins than currently modeled.
  
• The major step-up in exploration-especially the expansion at M1 South and the first drill program at M5-could unlock fresh, high-grade underground discoveries at Sanbrado, providing substantial resource and reserve growth that could support a multi-year extension to West African Resources' production profile and drive long-term earnings upgrades.
  
• With global de-dollarization trends and sustained geopolitical instability, gold is increasingly being favored as a strategic asset by central banks and investors, which could provide a structurally higher price environment; as a fully unhedged producer with rising production, West African Resources is uniquely positioned to translate these macro tailwinds into surging top-line revenue.
  
• The company's demonstrable commitment to community development and its outstanding safety record-recognized through national awards-could accelerate government permitting and strengthen social license to operate, reducing project risk and potentially lowering the long-term cost of capital, which would boost both net margins and valuation multiples relative to peer miners.

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 52.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 30.7% today to 40.4% in 3 years time.
• The bullish analysts expect earnings to reach A$1.0 billion (and earnings per share of A$0.91) by about July 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 7.8x on those 2028 earnings, down from 12.3x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 13.1x.
• 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 7.3%, as per the Simply Wall St company report.

West African Resources Future Earnings Per Share Growth

Risks

• West African Resources' heavy reliance on Burkina Faso concentrates both its mining assets and major capital investments in a single jurisdiction, exposing it to heightened risks from political instability, evolving local regulations and increasing security risks, any of which could disrupt operations and reduce both future revenues and net margins.
  
• Recent changes in local content requirements are forcing the company to replace established contractors such as AMS, which introduces execution and transition risk in both operational continuity and cost structure, potentially increasing operating costs and compressing net margins over time.
  
• The company's growth strategy hinges on successful resource delineation and reserve expansion at existing assets like Sanbrado and development at Kiaka and Toega, so any challenges in grade depletion, reserve replacement, or delays in exploration success may drive higher future capital expenditure requirements and constrain long-term revenue and earnings growth.
  
• West African Resources operates in an environment of rising global ESG scrutiny and increasing sustainability expectations for gold mining, which may lead to stricter environmental or local regulations that increase compliance costs, impact access to institutional capital and ultimately reduce profitability and future financing flexibility.
  
• As global technological and financial innovation creates competing investment alternatives to physical gold, potential long-term declines in gold's appeal as a store of value could soften gold prices and erode the company's revenue base, especially as unhedged sales expose them to price volatility.

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$1.0 billion, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 7.3%.
• Given the current share price of A$2.42, the bullish analyst price target of A$4.7 is 48.5% 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.