Ann: Cashflow to commence from Sol Plaatje, page-8

From the Far East weekly report
"WWI getting cash flow from gold

You may recall that West Wits (WWI) has a multi-million ounce gold resource in the Central Rand Goldfield in the Witwatersrand, in South Africa. It has an historical JORC resource of 12.8 Moz at 4.6 gpt to a depth of 3,100m. Normally this would have shareholders doing cartwheels, but enthusiasm needs to be moderated due to the depth and the issues with dewatering below the 400m level. So, the company chooses to focus on the near surface resource of 1.4 Moz, to that 400m depth. The resource statement is 12.7 Mt at 3.38 gpt.

WWI is aiming to produce 100,000 p.a. for 10 years. To this end it started with an open pit at Sol Plaatje, in August 2016. The scheduled rate was 130,000 tpa, with earnings to be shared with the contractor. First receipts were received in November 2016, but there were some issues with the grades and the contractor. A new contractor was appointed in June 2017, with a planned production rate of 15,000 tpa. Agreement was reached to treat the ore in Sibanye Gold’s Ezulwini treatment plant, 40 km trucking distance away.

Last week WWI announced that its 60% share of the cash flow is expected to be $155-$175,000 per month, on treatment tonnages of 10-15,000 tonnes per month, from September, for an initial period of 15-18 months. While this production and projected cash flow will be most useful for a company capitalised in the market at only $8.2m, it is nonetheless modest. However, the corporate strategy needs to be placed in perspective. This is just the first step in commercialising the > 1 Moz near surface resource. WWI is going through the process to secure permitting for the larger resource. It can then expand beyond the current mine plan to include development of the underground ore as well. This is where the 100,000 oz p.a. target comes into play.

Once the permits are in place WWI will have a significant gold production asset that will be readily saleable to a number of companies operating treatment plants in the area. Earlier modelling suggest that the NPV of these gold assets could be in the order of $250-$300m. WWI’s share of this, after Black Empowerment takes its cut, would be 70% or $185-$222m. The smart strategy being considered by WWI would be to sell this for some sort of a discount to a nearby operator.

The net figure to WWI could be in the order of $50-100m i.e. at least five times the current market capitalisation. A sale of this magnitude would enable the company to make a sizeable capital return to shareholders. Thus, we are looking at a gold asset play here, where shareholders could make a multiple of the current share price. It has taken a while to get to the current point, and it will be at least another year before it will have all of the licences in order, so shareholders need to continue to be patient.

Likewise, patience has been required for WWI’s very exciting Derewo gold project in Papua. This looks as exciting as Porgera did in the early days, or Mt Kare. The issue is getting full access to commence production from the alluvial areas. Once this is achieved, exploration for the hard rock can commence. Downside from this point is minimal, while there is upside potential measured in multiples".
Is it smart to buy or smart to sell? Hopefully others will see some opportunity here