Ann: WAF hits 6.5m at 61.8 g/t gold at M1S, page-52

I disagree with much Esh has to say, most in fact. I can't honestly say if it's because he rubbed me the wrong way at the start, because his views are erroneously coloured by jaundice at having been screwed in the final capital raise, or because he insists on punching above his knowledge weight? Regardless, he is right to be dark on the 25c CR after so much exploration success and value added. I'm not sure what the answer is but there has to be a better way than throwing early supportive shareholders to the rapacious brokers for a final screwing. Maybe some sort of reverse dutch auction CR rather than a secretive, pre-arranged discount to the same MF's who sold it down in the first place. Maybe a bigger effort to find a project level JV partner that leaves existing shareholders better off than sever dilution to the West Perth mafia?

Whatever, what's done is done. I honestly understand the resentment of old holders to chirpy newcomers post CR who swan in with happy clappy posts about the extreme value on offer. Pretty f'n rude and hard to swallow no question. But shareholders and management must move on, what's done is done, the milk is split, the omelette cannot be unscrambled, make the best of a bad situation etc. I'm firmly focussed on what management is doing to add value moving forward, on how much value is being ignored by the market in WAF, and how bigger bite I can afford to take. Frankly, that's anybody should be focussed on.

My impression is that there is not a lot of shareholder equity being spent on increasing the mine throughput capacity. The major items were ordered some time ago, probably over oversized slightly given the very small cost difference between a ball mill of X vs X*1.2 size for example. Most of the cost is in the procurement, production, transport and installation of a ball mill. To order one 20% bigger to be sure was probably worth almost nothing in terms of steel content, welding or cost, and so the sensible thing is to go a bit bigger to be sure. Bit like supersizing a meal deal lol. Seriously though, savvy plant builders with many years of experience will look at the design and think "if we de-bottle neck here and add a little capacity there" suddenly an extra 20% throughput is possible. That is what I think WAF's crew are up to, and I think it is what makes Australians the worlds premiere miners and plant managers. We helped develop CIP technology, we have been doing this with gold deposits for almost 40 years, we may be sheet at building cars and but we know mining and I for one am proud of that.

So what is the upside to the extra throughput squeezed out of the plant and compressing the mine life form 11 to 8 years post production? This is where I find myself disagreeing with Esh as usual, I think the upside is enormous on all the metrics that investors and potential takeover suitors measure. If you don't mind, I'm going to have a crack at preempting what the new mine reserve figures might look like based on a higher throughput. Below is a basic spreadsheet showing the current DFS production and financials in USD. I have used company figures on production, ASIC, gold price to calculate a rough 'EBITDA' (ie Oz prod*(Auprice-ASIC) and then a NPV formula to proof that the NPV equals what the DFS calculated. Pretty close. Of note is that to get an average LOM AISC of $641 with the first 5 years $551 means that the last 6 years are a horrendous $875 ASIC. Not surprising given Au production is a pitiful and sub-optimal 50-100kOz pa.



Below I have updated the production from 11 years to 8 tears as the company has suggested. I have not changed the first 3 years gold production, or 5 years ASIC, even though I have bumped up slightly years 4 and 5 Au production. The obvious big improvement is to add M1 Sth u/g production to year 5 onwards bring the total up to 200k Oz Au, together with some help from a 10-15% bigger and quicker M5 reserve depletion. This new reserve of 1,700,000 Oz comprises some 90k Oz increase from M5 as flagged in the last preso, plus approx 150K Oz from extending M1 Sth reserve deeper. Weather or not they have done the drilling, nobody denies the high probability that another 100m of reserve, at 1500 Oz/m, exists further down as the lode has delivered so far.



The outcome is approx a 33% increase in all the financial metrics. Not bad for essentially de-bottlenecking the plant throughput, optimising the mining reserve and adding the extra M1Sth reserves we all know are there (including takeover suitors). I don't want any nit-picking about the fact the M1 Sth reserve is not drilled out another 100m deeper, but I'm happy for anyone to tell me why it might reasonably not bet there when it is drilled?

Now lets look at how this new LOM plan might look in AUD (71c AUDUSD), because after all we trade on the ASX in AUD.



Obviously the same % increase in AUD but check out those figures! Pre-tax NPV over $1B on almost $1.5M free cash flow plus we still own a 2.5Mtpa mill just 8 years old with underground upside, new discoveries to blend in and consolidation within the belt of discoveries surrounding Sanbrado. Post tax, WAF has $1.1B free cash flow and a NPV of $755M vs their current market cap of $224M. That market cap includes some $75M of cash which is going to capex (and should be added back to the NPV anyway), in other words $830M NPV against a $150M EV for WAF.

Look at the first year pre-tax free cash flow $265M, pays back the US$185M capex in 1 year (AUD$260M @ 71c USDAUD). After the first years production WAF will have essentially no debt and a price to earnings of around 1:1. What a friggin bargain, discounted to buggery because of BF terrorism and rising violence between tribes in the north and east. Mali has been in the grip of severe Islamic terrorism and violence for 4-5 years and yet I cannot find one instance of a single Mali gold mine losing one life or even one day's production. These West African gold mines provide 4% royalty, 20-odd% taxes and 10% free carried interest the their countries. That equates to approx USD$5M royalty, USD$24M tax, and USD$10M post tax revenue per year on average to the BF government every year they keep WAF running. Who is really surprised that these West African governments have kept the gold mines running without interruption all this time? You all know I think the sovereign risk discount is manna from heaven. The west is currently undertaking a USD$100M fund raising effort to assist BF fight the scourge of IS terrorism. The BF government isn't going to bite that hand I'm betting.

While I'm on the upside of my bipolar disorder, why not consider what a USD$50 increase in the gold price does for the valuation.


OMG... post tax NPV almost $1 per share plus there is still mine life upside from M5 u/g, M1 Sth u/g obviously, exploration upside within trucking difference, and then B2 Gold's 1M Oz Toega deposit so close I could flop my wedding tackle onto it from the M1Sth boxcut. All unreasonably discounted because either the BF government will allow terrorists to disrupt a gold mine in the quiet centre of the country, or WAF will stuff up a garden variety gold plant on a metallurgically sweet deposit. Is it the red wine or the thought of my swelling wallet making me swoon? Doesn't matter, as I sit here listening to Depeche Mode's "enjoy the silence" I'm thinking do I hit post or keep my silence and buy more for myself tomorrow. If your reading this I guess that means the red wine got better of my judgement. That and I took Monty Python's Mr Creosote's sage advice... "f*#k off, I'm full" haha.

Cheers