Perspective

First you post good analysis, then they snigger, then they argue, then they insult and then you leave. Such is the lesson I learnt on HC 10 years ago and the lesson seems valid today. Why some posters feel the need to read into good, honest and knowledgeable contributions subterfuge and misinformation, then feel the need to voice such on baseless paranoia and ignorance is beyond me. I am reminded of a few truisms, one very pertinent to this site is "a wise man can learn more from a fool than a fool form a wise man".

Apologies for starting off grumpy, it is really only one poster who has got under my skin, because I know most come here to learn and make some money not try and punch above their weight or defend their turf. I am all for constructive debate and sharing ideas, nobody has it right all the time and testing one's beliefs can only improve your knowledge and performance. Try and keep an open mind, test your own beliefs against the devils advocate and by all means challenge the accepted narrative but just keep it respectful. I understand bitterness at buying too early and being heavily under water, I can forgive ignorance, but I simply can't stand the meanness that seems to come with being long term wrong. Cognitive dissonance I suppose.

So I turn up here at a time of much wailing and gnashing of teeth. Unsurprising given the share price beating long suffering supporters have taken during a period of exceptional exploration discovery and progress towards becoming a profitable gold miner. Why am I an 'upramper' at 22.5c when the same posters crying into their keyboards were no doubt posting effusive praise of the sun shining out of WAF's ass in the 30c range? Why am I an apologist (for management I assume?) because I proclaim 22.5c undervalued and little fault of management, they have done little wrong but suffer the slings and arrows of outrageous market fortune the way I see it. Some posters honestly seem to think WAF is the first junior explorer to be sold down unfairly, well the truth is very few have never been unfairly sold down. I appreciate a healthy dose of cynicism, but the second thought should be where did I go wrong, not why is the market picking on me or who the * is that chirpy johnny come lately.

And so it is I find myself putting good time into shedding some light on the reality of investing in junior resource stocks and drivers of market pricing. Not for the idiots who know it all in the face of evidence to the contrary, but for those genuinely wanting to learn and become successful at this exciting, frustrating but hopefully rewarding roller-coaster called stock market. The explorer market is small part casino where the odds are modesty stacked slight against you and largely a racket for insiders like management, employees, promoters, brokers, seed capitalists, privileged sophisticates, close family and friends of all the above. Sorry, but if the MD has your number in his mobile and you speak with him once a fortnight you are still on the outside of the tent.

Let's start off with the time honoured 'explorer's time v value graph' as below. Self explanatory, explorer bangs away for a number of years until hopefully hitting the jackpot (most never do) then share price is driven by a stream of good exploration results and speculators to a high around the time one more good drill hole really makes little difference and the feasibility study is underway. Speculators take profits and move on knowing that sans a takeover there is a long and boring road of dilution and disappointment ahead. More sellers than buyers drive the price inexorably down. Large funds are somewhat cray-potted by liquidity but all is not lost. By selling down into this 'Orphan Period' funds can re-stock at the bottom from stale old bulls, traders caught buying too soon, those who lose their nerve or simply need their money back, plus the obligatory capital rasiings. A lot of dead bodies from the speculative blow off top down the long slow years of development mean even when the price turns north there is no shortage of holders happy to 'just get their break-even money back'. All previous thoughts of buying a bargain and waiting for a profitable mine or takeover have been replaced with fear and resentment and a desire to undo their mistakes and get their money back (sound familiar Esh?). A different type of institutional investor comes on board during/after the start-up phase for exposure of their desired commodity, growth in free cash flow and organic business growth , and hopefully M&A profit realisation trigger. 



WAF's weekly graph below. We are at the in the development orphan period, which is a fact not just a matching share price graph.



WAF had a slightly different pre-discovery route because the main deposit was too low grade to be economic so ultimately there were a few disappointing years of raising capital, drilling and and falling share price until the M1 Sth High Grade deposit was discovered and appreciated. That was the true discovery, Jan 2016, that brought in speculator interest and sent the share northwards. 2 years of a rising share price as the market applauded the continued grade and depth of the M1 Sth discovery and impact to the projects economics. By Jan 2018 the savvy speculators knew the DFS was due (originally due end of 2017 but delayed until May 2018) and started selling down. Maybe they were selling to Esh I don't know, but they must look back now and think "well done, happened again just like it usually does". 

All the good news in the world couldn't stop the inexorable sell down by early investors moving on or larger investors taking profits into the lull knowing their would be more capital raising and opportunities to get back in later on. Short term traders buy each dip and either sell the bounce or stop out if they hung on too long keeping the trend going down. Big players sell and buy all the way down, selling high then re-stocking low to do it all over again for a tidy profit while maintaining a good exposure to the company. The worlds large banks all report huge trading profits each quarter doing the same thing in larger cap stocks, it's how the market has operated for a long time and will likely continue to so. Do yourself a favour, learn how it works and go with the flow, don;t fight it.

There is also fundamental good reason to sell out at the end of the exploration value add stage. A few of the risks one exposes themselves to in the market include: market crashes and corrections, commodity price risk, country risk on many levels, DFS risk, development risk, start-up risk, dilution risk. The market is forward looking and time is money and time increases the chance of being hit with one of the above risks. Does anyone really believe they need to wait for some more infill drilling or a DFS to have a rough idea of how big the orebody is, what long term exploration upside there is, what the capex and opex will be based on numerous close analogies? By Jan 2018 enough savvy players knew roughly what the situation was and that they didn't want to hang around for the dilution and downside risk given how predictable the orphan period sell down would be. The only upside is a takeover, which hardly ever happens and if it does so be it, probably nothing lost in any case.

So management know this as well though they are paid to talk it up relentlessly regardless. Good news bounces are sold into and any bad market news just accelerates the ride down. They need to keep raising capital to feed the beast and build a mine. The best they can do is play their cards well, avoid getting too short on cash in hand and cross their fingers the gold price and market sentiment is in their favour come time for the big finance raise. What are their choices? Refuse to go to development because the share price is too low or bite the bullet and get on because next year the gold price might be even lower and the share price certainly won;t be any higher without a price driver. 

What some hear don't appreciate is that one more good drill hole will likely not change the trend unless it represents a new discovery. Proving that an orebody extends deeper as expected isn't really going to bring in any new buyers. Honestly, who here is waiting to buy more shares at a higher price just as soon as the next infill hole joins the high grades dots between the previous two drill holes? None I'd venture because everyone invested holds on the expectation that the M1 Sth orebody will infill without surprise and extend deeper. What if the next drill hole deeper misses the HG shoot because it has been faulted off of simply disappeared, have you thought of that? Deeper drilling is a two edge sword and maybe there is more to lose trying to prove everyone's expectations than letting them just believe it. I'm not saying do nothing and there is a heck of a lot going on I'm sure but the market is not really interested in ticking any boxes right now. Drillers all probably shut down and took a good few weeks off over Christmas given the whole supply chain seems to want to knock off this time of year. A new discovery would add value, that and M1 Sth deeps as a necessity, is what I would be focussed on drilling wise which I'm sure they are.

So WAF is suffering the traditional post discovery, development sell down usual for junior explorers (MOD etc etc). This sell down has no doubt been exacerbated by a FID cap raise discount, which fed into the December stock market correction and was followed up by increasing jihad violence and increased country risk discount which culminated with a western geologist's death. All these reasons explain the share price weakness yet some here only see Machiavellian schemes and dodgy new posters spinning their web. Honestly, Occam's razor people, the simplest explanation is usually the right one! One or more long term investors probably want out (and there are plenty of suspects; last placement short term hands, Macquarie's 40 million oppies converted at 14c last year etc etc) and the only way to get out is selling on market which pushes the price down. Sure, there are predators helping it along and licking their lips but we are hardly in inexplicable, uncharted new terrain.

Why am I buying into the 'orphan period' sell down? Like I have said, I'm too impatient and too much a sucker for value to try and pick the very bottom. If we say the 'pre-discovery' price was around 8c then as per the explorer's time v value graph one cannot reasonably expect the share price to fall back to no value for all the discovery value (especially high grade very profitable ounces), capital raised at much higher prices and development, permit work etc since then. Maybe the price goes down to 15c but I am happy to buy for the 2 year build and start up phase now at 20c given it represents very good fundamental value and technical technical support and is about the time sellers will hit a wall of value buyers. That is what stops a downtrend like this, simply more bargain buyers than sellers wanting out or trying to play their games. It can't be far away.

Speaking of fundamental value, here is an interesting factoid for those interested in facts. Since listing on the ASX June 2010, WAF has raised approx $175M dollars from shareholders and almost all has gone into the Sanbrado project. At a 20c share price tomorrow the market cap of WAF would be $175M. Think about that coincidence, all the money raised has gone (or going) into the unavoidable costs of exploring, managing the company, drilling out the deposits, feasibility studies, permits and building the mine yet we are a whisker off having achieved zero market value add for that 9 nine years of risk, spend, success and toil. Remarkable given the gold price ios US$1300 when you think about it... mugs game haha.

They say it takes 7 years form discovery to mine these days so no company could expect to do much better cost wise but the reality is most never find a deposit that is economic despite much time and money spent. The big boys, in fact all explorers, will appreciate that it would take 9 nine years and $175M if you were lucky (most aren't of course) to find a replacement for what WAF have their foot on. Me thinks a suitor will gladly pay double to save 9 years and the risk of failure to buy a fully funded, 2 million ounce reserve, 200,000 Oz per year producer with low ASIC of around US$600/Oz when the gold price is near $1300.

Of course, so many things could turn to sheet and I lose my investment, this is a risky business and never forget it. Know what your investment time frame is, expect the short term price to move for and against you, the share price reflects sentiment and weight of buyers vs sellers not fundamental value, don't blame others for your own decisions. This is a game for grown ups, it requires knowledge, fortitude and good luck. Frankly it's a game that suits very few.

Good luck and goodbye.

PS I have never spoken or had dealings with anybody from WAF. These are my own thoughts not advice, caveat emptor.