I managed to find the AFR article on western gold - enjoy
Western Gold Resources, the first African gold exploration float in months, comes with a twist: an Australian deposit that could be fast-tracked into production within a year. The plan is to funnel early cash flow from the Wiluna West Gold project near Meekatharra in Western Australia into a Senegal gold project and to acquire other African tenements. Wiluna West is no company-maker. A resource of 258,000 ounces that complies with the Joint Ore Reserves Committee code is better than many small exploration floats, but not enough to excite gold bugs or, on its own, justify a planned $10 million capital raising. Western Gold?s real strength is speed. It wants to treat ore at nearby production plants and eliminate capital costs of building a facility. If negotiations with contract millers are successful, Western Gold could produce up to 20,000 ounces a year, from next year. Directors and management receive up to 6.4 million performance rights, which convert to shares if Western Gold produces 20,000 ounces of gold over 12 months within three years of listing. That looks like a low performance hurdle but such production, if it happens, would create considerable cash flow for a company capitalised at $26.2 million at the full subscription. Junior explorers with management performance hurdles based on operational milestones rather than share price targets, which can be achieved through company announcements, are often better bets. Most of the Wiluna resource is in the inferred category, which means part of the tonnage and grade can be estimated with lower confidence. Western Gold will spend $2.1 million on exploration to get more of the resource into the indicated and measured categories, and increase the resource size. Western Gold sees no need for feasibility studies or waiting years to build up a resource before producing from Wiluna. Its eye is on a bigger prize: a 75 per cent interest in the Dalafin gold project in Senegal, West Africa. Australian gold explorers have mostly focused on the African hot spots of Ghana and Burkina Faso. British and Canadian gold explorers have been more active in Senegal. Mineral Deposits is the best-known Australian miner in Senegal, with the large Grande Cote minerals sands project. Canadian-based Teranga Gold Corporation, created to acquire Mineral Deposits? Sabodala goldmine in Senegal, listed on the ASX in December. Its shares have fallen from $2.97 to $2.40 since listing. Western Gold was formed when Golden West Resources (GWR), an emerging iron-ore explorer in the midwest region of WA, had an opportunity to acquire an interest in the Dalafin gold project from Silvrex, a private British company. GWR wanted to focus on iron-ore projects and divest uranium and gold assets. The potential was to package Dalafin, an early-stage asset, with the more-advanced Wiluna, in a new company. GWR shareholders will receive 52 million Western Gold shares through an in-specie distribution and can buy more shares through a priority offer. GWR could subscribe for up to 10 million 20? shares, depending on demand, through the priority and public offers. Its shareholders could do with a boost. GWR?s average annual total shareholder return over three years is negative 32 per cent. The Perth company listed in 2004 after raising $2.8 million, largely on the back of Wiluna West and other Australian gold projects. The 52 million Western Gold shares are not escrowed, meaning they can be sold upon listing. The share price could come under early pressure if GWR shareholders dump their free stock and take profits. Western Gold says its largest shareholders are committed. Much will depend on early success from Dalafin, about 10 hours? drive from Senegal?s capital, Dakar. Dalafin is 20 kilometres from Randgold Resources? Loulo gold mine just over the border in Mali. Loulo had a proven and probable reserve of 6.52 million ounces of gold at December 2010. Senegal is among the more politically stable countries in the region, but is less stable economically. Sovereign risk is an important consideration for Western Gold investors. Another issue is Silvrex?s agreement with Senegalese company Energy and Mining Corporation. Silvrex?s interest in the Dalafin projects increases to 75 per cent only if $US3 million is spent on exploration with five years. Western Gold is acquiring Silvrex. Silvrex managing director John Cole-Baker will lead Western Gold. Based in Britain, Cole-Baker has worked on overseas mining projects for 35 years. He will spend his time between Senegal and WA, and will look to acquire other projects, possibly in Mauritania. Gary Lyons, managing director of the Australasian operations of Heiniger Group, a privately owned Swiss manufacturer of agriculture products, will chair Western Resources. Lyons is also a non-executive director of GWR and FairStar Resources, a junior explorer with a sagging share price over three years. Lyons last year joined the FairStar board, his first in the mining sector, after tiring with its performance. Western Gold?s combination of potential near-term production in Australia and blue-sky from West African projects distinguishes it from many tiny exploration floats that have one or two assets and are a long way from a JORC resource or production. But with that comes a higher valuation of $26 million. One concern is corporate overheads of $1.96 million over two years and only 60 per cent of funds raised going into exploration. Western Gold?s best feature is its scope to fund exploration and acquisitions without new capital raisings that swell issued share numbers and dilute shareholders. West African gold floats were popular last year as junior explorers capitalised on booming investor interest in the region. They have not been as popular this year as West African stars, such as Perseus Mining, Ampella Mining and Gryphon Minerals, retreat from their share price highs. Western Resources is confident of closing its float, but it may have had more investor interest had it listed a year ago when West African gold floats were prominent, and market conditions more conducive.
GWR Price at posting:
62.6¢ Sentiment: Buy Disclosure: Held
