Southern Goldfields And Higginsville Projects Will Unlock Mining Productivity

Key Takeaways

• Infrastructure completion and expansion in key areas may boost productivity and revenue through improved production outputs and optimized costs.
  
• Full exposure to gold price increases, combined with improved mining outputs and efficiencies, suggests potential for enhanced earnings and increased margins.
  
• Operational challenges across projects, coupled with increased costs and dependency on high-grade supplies, could hinder revenue growth and pressure net margins.

Catalysts

Engages in the exploration, operation, development, mining, and treatment of gold and other assets primarily in Western Australia.

• Significant infrastructure projects in the Southern Goldfields are expected to be completed by the end of the quarter, unlocking productivity and potentially increasing revenue from higher production outputs.
  
• Expansion plans at Higginsville are underway with a scoping study for increased processing capacity, which could improve revenue through higher throughput and optimize operating costs.
  
• The ramp-up of mining outputs at Bluebird-South Junction and planned access to higher-grade loads at Starlight suggest potential for improved net margins by displacing lower-grade stockpiles.
  
• Financial synergies post-merger with the Southern Goldfields aim to reduce costs, providing potential upward pressure on net margins as new efficiencies and lowered operational costs take effect.
  
• As an unhedged gold producer, Westgold’s full exposure to rising gold prices is expected to benefit revenue and margins, enhancing earnings as they capitalize on current market conditions.

Westgold Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Westgold Resources's revenue will grow by 26.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 47.5% in 3 years time.
• Analysts expect earnings to reach A$936.6 million (and earnings per share of A$0.51) by about May 2028, up from A$23.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.0x on those 2028 earnings, down from 117.3x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 11.9x.
• 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 7.33%, as per the Simply Wall St company report.

Westgold Resources Future Earnings Per Share Growth

Risks

• The Murchison project is underperforming, largely due to lower production output at the Fortnum project and issues related to workforce illness, aging fleet, and haulage challenges, which could negatively impact revenue and net margins.
  
• Temporary increases in costs for the company, such as higher stockpile consumption, increased sustaining capital expenditure, and added haulage costs in the Bluebird Mill, could pressure net margins and profitability in the short term.
  
• There is a dependence on high-grade supply from specific projects, like Bluebird-South Junction, which currently has a slower ramp-up than expected. This creates a risk for timely output increases and revenue growth.
  
• Infrastructure issues at the Beta Hunt mine, impacting mining rates, along with delayed infrastructure projects, could hinder Westgold’s ability to improve productivity efficiently, thus affecting revenue forecasts and net income.
  
• External factors such as possible workforce issues, equipment replacement, and geological challenges could lead to increased operational costs and challenges in achieving projected earnings and cash flow from operations.

Valuation

• The analysts have a consensus price target of A$3.963 for Westgold Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.53, and the most bearish reporting a price target of just A$3.63.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$2.0 billion, earnings will come to A$936.6 million, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of A$2.97, the analyst price target of A$3.96 is 25.0% 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.