We get it now, page-8

full Argonaut note below

Monday, 27 March 2017

	Column 1	Column 2
0	Stock	WAF:ASX, WAF:TSX
1	Recommendation	BUY
2	Current Price	$0.22
3	Target Price	$0.40

Quick Read
West African Resources (WAF) is a well-funded emerging gold producer progressing the development of wholly owned 2Moz Sanbrado Gold Project in Burkina Faso. WAF acquired the project in 2014 and completed an open pit feasibility study in February 2017. The Company is advancing towards a number of milestones over the coming months including the completion of an optimisation study aimed at enhancing project economics. Sanbrado’s strategic proximity to a number of advanced projects increases potential for regional consolidation. Argonaut initiates coverage of WAF with a BUY recommendation and a $0.40ps target price.
Event & Impact | Positive
Open Pit Feasibility: WAF released its Sanbrado open pit feasibility in February 2017 with a post-tax NPV₅ of US$100m. The study assumes capex of US$131m, production of up to 150kozpa in Years 1-3, an IRR of 21%, a 2.3-year payback and life of mine costs of US$759/oz.

Optimised Feasibility due mid-year: The initial feasibility demonstrated a high margin but high strip ratio project, largely as a result of the study focussing on open pit extraction of the high grade (8.6g/t) M1 South deposit. Additional drilling is being undertaken to assess the viability of underground mining. Argonaut believes the optimised Feasibility will see additional high-grade reserves at lower production costs from M1 South. We model higher production than the PFS of 180kozpa resulting in a payback of less than two years.

A high tenor M&A target: Several key gold mines and un-developed gold resources are located within 50km of Sanbrado. Argonaut believes Sanbrado’s higher grade would make it an attractive ore source or centralised processing hub to improve the economics and/or scale of nearby operators such as Orezone’s (TSE:ORE) Bombore deposit, B2 Gold’s (TSE: BTO) Kiaka deposit or as an attractive growth asset for African operators such as Resolute Mining (RSG), Semafo (TSE:SMF) or Roxgold (TSE: ROG)

The market only paying for base case Feasibility: At $0.22cps the market is only ascribing value for the existing Feasibility Study, reserves of 894koz and post-tax NPV of US$100m. The current price ascribes little value to exploration upside or to further refinements to the Sanbrado Feasibility Study which will include the high grade M1 South underground operation and high grade targets within the M5 orebody.
The cheapest of the emerging developers: WAF trades at a fully funded EV/Reserve of $304/oz and a FF EV/Production of $1,812/oz vs the sector producer average of $4,451/oz. As WAF moves closer to production the discount to our valuation should unwind.
Recommendation
Argonaut initiates with a BUY recommendation and target price of $0.40ps.