What is happening!, page-6

Well, lets see.

On a full year basis, based on the inaugural half year report:
$24M profit before tax attributable to members.
Current market cap @ $2.40 = approx $700M.
That's 28:1 PER. Take a 20 off that to be an average gold stock.

The company has $124M in cash which, I note, it didn't earn in the preceding period. This is a fine float of the till from the demerger but it needs to go up from actual profit from here on in. $38M is intercompany loans, the rest is a cash split.

The $12M per half year is on a revenue stream of $199M and costs of $188M. So their gross margin is 6%. That's very, very thin. That's a bad month at one mine away from an operating loss for the full year. Or a 6% drop in realised gold price over the year, or a 6% cost inflation.

Now, yes, they are doing a lot of capital intensive development, and that is ramping down. But that's what you need to do to access ore, so it's actually equivocal as to whether they can get away with lowering capital works by 30% for a full year, and keep it low (eg; the 'mine property and development dropped from $40M to $30M; that's less pre-strips) going forward especially looking at their old, tired assets.

The coasts, at $1480/Oz, mean that gold price is a big issue for the company and a big risk for investors. Remember in 2015 the cost was....drum roll...$1884/Oz. ouch.

If they intend to produce gold at Fortnum, they are averaging a project startup capital of $211/oz. 30,000 ounces a year is more than their budget of $15M, so either Fortnum is extremely benign for start-up capex (nope) or they have woefully underestimated it. If RNI couldn't do it for $25M why can WGX do it for $15M? Expect a fair bit of slippage here.

I mean, good job getting $400/oz off the costs in 2016 by, mostly, doubling production (50% more tonnes, 15% more grade, double the ounces) but it's not really a good look. It makes you think that MLX demerged the gold assets to get an albatross off the copper and no the other way around.

The other thing is, if you're making $100 an ounce off 140K oz, it's $14m p.a. in profit. So to make $24M for the full 12 months of the 2016-17 financial year, WGX has to;
- increase production by 50% more (unlikely)
- decrease cash costs by about another $80/Oz
- reduce capital expenditure by another $10M or another 30%
- some combo dealio

Really, why isn't the share price falling? To sustain a $700M market cap you'd want to see profits of $80M p.a., which would require $570/oz margins on an AISC basis for the full year. Considering the year is half done, that's not going to happen.

$1? $1.50/sh? Depends on how realistic you think the company's prospects of turning a decent profit per ounce on all its properties are in the 2017-18 and 18-19 FY.