Westgold Resources (WGX)

Transcription

1 7 February 2017 Analyst Peter Arden Authorisation David Coates Recommendation Buy (unchanged) Price $2.25 Target (12 months) $2.60 Expected Return Capital growth 15.6% Dividend yield 0.4% Total expected return 16.0% Company Data & Ratios Enterprise value $595m Market cap $686m Issued capital 304.7m Free float 64% Avg. daily val. (52wk) $2.6m 12 month price range $ $2.29 GICS sector Materials Disclosure: Bell Potter Securities acted as Co- Manager for the $100.6m placement by MLX in August 2016, prior to the demerger, and received fees for that service. Price Performance (1m) (3m) (12m) Price (A$) 1.72 na na Absolute (%) 30.8 na na Rel market (%) 32.8 na na Absolute Price $2.50 $2.00 $1.50 $1.00 $0.50 $ Dec Dec Jan Jan Jan-17 SOURCE: IRESS WGX S&P 300 Rebased Westgold Resources (WGX) Gold production continues to grow Cannon mine fires up as CMGP s output continues to climb In its first quarterly report as a substantial standalone gold company that was formed by the demerger of the gold assets from diversified midcap miner, Metals X Ltd (MLX) in December 2016, WGX recently reported continued overall growth in gold production for the December 2016 quarter. Equity and group gold production rose 10% to 68.8koz and 15% to 75.1koz respectively, having been boosted by the strong performance of the Cannon open pit mine, in which WGX has a 50% profit share, as it nears the end of its planned life. Central Murchison s gold production increased again as mine development advanced. WGX s average all in sustaining cost (AISC) in the latest quarter was 5% lower on an equity basis at A$1,187/oz, continuing the trend over the course of As it was only a separately listed company for a month of 1HFY17, we forecast that the company is likely to report a tiny profit for that period but that it is set to generate strong earnings and cash flow in 2HFY17 and beyond. Rebound in gold price as world adjusts to Trump The gold price has risen 10% in US dollar terms since its recent low of $US1,123 in mid-december 2016 that followed the election of President Trump in the USA as the world continued to adjust to his evolving policies that include plans for a major boost to infrastructure and a seemingly more isolationist foreign policy. While there have been further signs of some stronger growth in the USA and other key economies, major debt burdens and financial instability remain as early signs of inflation emerge and the US dollar declines from its 14-year high, making for more supportive conditions for gold. Investment thesis Buy, TP $2.60/sh (prev. $3.02) WGX s first production report as a listed standalone entity showed continued overall growth in gold production, which was bolstered by the planned final stages of the Cannon mine. We have revised our earnings forecasts and valuations to reflect the latest production and incorporate revised gold prices. While lower, our near term forecast gold prices are above current spot prices as we expect gold to rebound further. We have reduced our FY17 and FY18 estimates by 37% and 14% respectively but we have raised our FY19 estimate by 22%. Our 12-month forward NPV-based target price is reduced by 14% to $2.60/share. Buy recommendation retained. Earnings Forecast Year end June 2016a 2017e 2018e 2019e Sales (A$m) na EBITDA (A$m) na NPAT (reported) (A$m) na NPAT (adjusted) (A$m) na EPS (adjusted) ( ps) na EPS growth (%) na na 199% 35% PER (x) na FCF Yield (%) na -2% 14% 20% EV/EBITDA (x) na Dividend ( ps) na Yield (%) na 0.4% 1.8% 2.2% Franking (%) na 0% 100% 100% ROE (%) na 9% 21% 23% SOURCE: BELL POTTER SECURITIES ESTIMATES BELL POTTER SECURITIES LIMITED ACN AFSL DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 10 THAT FORM PART OF IT. Page 1

2 WGX s equity gold production keeps rising Table 1 - Production summary Annualized gold production closing in on 300koz rate Equity gold production of 68.8koz in the December 2016 quarter was up 10% on the previous quarter at 5% lower average all in sustaining cost (AISC) of A$1,187/oz (Table 1). Dec-15 Actual Mar-16 Actual Jun-16 Actual Sep-16 Actual Dec-16 Actual Dec-16 Estimate Variance % qoq Variance % BP est. Higginsville Gold Operations (HGO) Ore milled kt % 7% Gold grade g/t % 0% Recovery % 93% 95% 92% 95% 92% 92% -2% 0% Gold produced koz % 6% C1 cash costs A$/oz 1,184 1,165 1, % -11% All in sustaining costs A$/oz 1,304 1,363 1,218 1,200 1,004 1,305-16% -23% South Kalgoorlie Operations (SKO) Ore milled (100% owned ore) kt % -45% Gold grade g/t % 7% Recovery % 90% 91% 92% 92% 90% 91% -2% -2% Gold produced koz % -42% C1 cash costs A$/oz 871 1, ,280 1,381 1,163 8% 19% All in sustaining costs A$/oz 1,048 1,145 1,071 1,472 1,664 1,415 13% 18% Cannon (50% profit share treated as equity share) Ore Milled kt % 41% Gold grade g/t % 10% Recovery % 91% 93% 93% 92% 91% 90% -1% 1% Gold produced koz % 56% C1 cash costs A$/oz 1,094 1,398 3,300 1, % -21% All in sustaining costs A$/oz 1,154 1,435 3,362 1, % -21% Central Murchison Gold Project (CMGP) Ore milled kt % 3% Gold grade g/t % -5% Recovery % 91% 92% 93% 90% 85% 90% -6% -6% Gold produced koz % -8% C1 cash costs A$/oz 1,060 1,506 1,135 1,136 1,085 1,127-4% -4% All in sustaining costs A$/oz 1,166 1,684 1,380 1,222 1,293 1,232 6% 5% Equity Totals Ore Milled kt % -1% Gold Grade g/t % 2% Gold produced koz % -2% Gold sales koz % 1% Average realised gold price received A$/oz 1,542 1,614 1,671 1,699 1,637 1,772-4% -8% C1 cash costs A$/oz 1,077 1,224 1,086 1,032 1,007 1,034-2% -3% All in sustaining costs A$/oz 1,204 1,390 1,279 1,243 1,187 1,226-5% -3% Gold Operating surplus (EBITDA) A$m % 10% Capital expenditure A$m (24.9) (32.8) (25.2) (37.9) (41.0) (49.6) 8% -17% Group Totals Gold produced koz % 1% All in sustaining costs A$/oz 1,200 1,392 1,319 1,234 1,149 1,333-7% -14% Balance Sheet Cash A$m na na na na na -11% Debt A$m na na na na (7.9) (7.9) na 0% Net cash and bullion/(debt) A$m na na na na na -12% SOURCE: WESTGOLD RESOURCES LTD; BELL POTTER SECURITIES LTD ESTIMATES Page 2

3 The main features of the 2QFY17 production performance were: Equity and group gold production rose 10% to 68.8koz and 15% to 75.1koz respectively, having been boosted by the strong performance of the Cannon open pit mine, in which WGX has a 50% profit share, as it nears the end of its planned life. WGX s average all in sustaining cost (AISC) in the latest quarter was 5% lower on an equity basis at A$1,187/oz, continuing the trend over the course of On a group basis, the AISC was 7% lower at an impressive A$1,149/oz; The Higginsville Gold Operation (HGO) achieved a milestone with the closure of the Trident underground mine and transition to open pit mining at Mt Henry completed. Gold production of 26koz was 4% lower than the previous quarter but was achieved at a 15% lower AISC of A$1,004/oz despite the processing of a substantial batch of Mt Henry ore of varying oxidation states as part of the ongoing metallurgical profiling process. The metallurgical data from that process is being evaluated to guide potential plant modifications for optimum recoveries for the Mt Henry style deposits. Exploration continued as the site moves to mining all of its feedstock from open pits by year end; Although mining at the South Kalgoorlie Operation (SKO) continued normally through the quarter, the majority of the plant processing capacity was devoted to the Cannon Gold Project, in which WGX has a 50% profit share. Whilst some of WGX s directly owned ores from HBJ and Georges Reward were processed, most of the directly owned ore was stockpiled during the quarter. Equity production (after including 50% share of Cannon) was 16.2koz, up 31%. It benefited from the big processing campaign for the Cannon mine. Even though that Cannon production was at an impressively low AISC of A$743/oz as mining of the highest grade ore at the base of the open pit occurs now as the pit nears the end of its planned life, the average equity AISC for SKO was only down 5% to A$1,305/oz because the average AISC of directly owned ores was up 13% to A$1,664/oz. Underground production from HBJ improved as ore development from the virgin SOZ lodes began to impact on overall ore grades and stopping output from the HBJ lodes was lifted by 42% in tonnes and by 8% in grade; The Cannon mine, in which WGX has a financing and 50% profit sharing agreement (after repayment of all costs) with Southern Gold Ltd (ASX SAU, not rated), performed very strongly as a significant part of its ore that had come from the highest grade part of the deposit at the bottom of the pit was processed. Total gold production from Cannon was 12.7koz at an AISC of A$743/oz. A larger stockpile of Cannon ore will be processed in the March 2017 quarter; Gold production from the major Central Murchison Gold Project (CMGP) increased again while important underground mine development advanced. Ore production continued to rise and so with the processed grade being 12% higher at 2.28g/t, despite the average grade of underground ore mined falling 6% to 3.3g/t, gold production was up 15% to 26.5koz but it was at 6% higher AISC of A$1,293/oz from the impact of open pit stripping and underground development of bulk stope areas on the Prohibition Lode at Paddy s Flat accelerated. The company s strategy of establishing a number of initial open pit sources while it progressively re-established four key underground mines, which when operational, would become the long term feedstock for the Project, has significantly progressed. The first underground mine, Paddy s Flat, is now in steadystate production and the second underground mine, the Comet, commenced late in the quarter with the establishment of the portal. Works at the third underground mine, the large Big Bell mine, comprising dewatering that began two quarters ago, advanced and the decline portal is now visible. Underground access at Big Bell for refurbishment is now expected to be re-established towards the end of the June 2017 quarter; The Fortnum Gold Project (FGP) advanced significantly over the quarter with dry commissioning of the front end of the processing plant starting. Dry commissioning has recently been completed and all engineering works are nearing completion with the Page 3

4 outstanding items being the power station and final switchgear, which are due to be finalised by 20 February Wet commissioning is expected to start late in February 2017 with first gold due in March Ore processing will commence on accumulated low grade stockpiles, which will progressively be replaced by higher grade ores from open pit and underground with the objective of achieving annual steady state production of about 70koz at average AISC of A$1,280/oz. WGX has decided to bring forward the dewatering of the Starlight underground mine following a review that highlighted its excellent potential. Open pit mining is scheduled to commence in the March 2017 quarter after appropriate dewatering of old pit voids. The average realised gold price was 4% lower at A$1,637/oz, which was just under 1% over the average spot price of A$1,624/oz as the company continued to deliver into its hedge position. Estimated EBITDA for the gold division of $39.7m was aided by gold sales being 3% more than production at 70.9koz. Exploration was at a high level across the company s operations with numerous positive results. Resource drilling of the Prohibition Lode in the Paddy s Flat mine at CMGP continued to intersect thick zones of gold mineralisation ahead of mining while the first drilling into the Fatt s ore system at the Paddy s Flat mine intersected broad zones of gold mineralisation that may be able to sustain mining operations that share the existing mining infrastructure. Encouraging exploration results at HGO included 19.15m at 4.4g/t gold from 100m down hole at Mt Henry Deeps demonstrates the potential for more open pit material and also for material that could potentially support a phase of underground mining after open pit mining has been completed while drilling at the Selene Prospect shows Selene is shaping up as a long term baseload ore source. Exploration drilling of the exciting Igloo anomaly under lake sediments on Lake Cowan at HGO was completed after achieving some excellent results such as 13m at 5.5g/t gold from 24m down hole while promising early results point to the potential for other discoveries under lake sediments in the HGO tenements. Exploration drilling of the Hansel Mundy deposit at SKO has shown that given its close proximity to the Jubilee processing plant, it could be a meaningful open pit ore supply while further exciting results from the newly defined Rinjani Prospect including 4m at 17.0g/t gold from 8m down hole and 28m at 2.4g/t gold from 28m down hole warrant further aggressive follow-up to test the potential of this significant new discovery. Drilling ahead of the pending re-start to mining operations at FGP achieved encouraging results at Nathan s and Horseshoe that indicate they could each support a resumption of open pit mining while encouraging results were also obtained at the Peak Hill 5-Ways pit; The company continued to deliver its gold production into its gold hedge program. At December , the total hedge position (including pre-pays) had been reduced from previous levels and was 125kozs at an average covered price of A$1,635 per ounce. MLX s gold hedge position is a combination of mostly flat forwards with a small amount of pre-pays with a current marked to market value estimated to be $3m at the current Australian dollar gold price of around A$1,613/oz; and Net cash at 31 December 2016 was estimated to be about $91m, which is lower than the proforma amount at the time of the demerger of WGX. Total cash and net working capital was $99.1m at the end of the quarter and the company had no corporate debt. WGX cost base set at 56.63% of Pre-Demerger MLX cost base The Australian Taxation Office (ATO) has issued a Class Ruling 2017/1 in respect of the taxation implications of the MLX Demerger for Australian shareholders. The Class Ruling confirms that the receipt of WGX shares pursuant to the Demerger is not taxable for Australian resident shareholders of MLX that held their MLX shares on capital account for tax purposes. The ATO also advises that pre-demerger MLX shareholders should apportion 56.63% of the Pre-Demerger MLX cost base to their WGX shares acquired under the terms of the MLX Demerger. For further details, see MLX announcement to the ASX dated 18 January Page 4

5 Earnings, valuations changed on revised gold price and production forecasts Positive earnings outlook as gold production grows In addition to updating our forecasts for the December 2016 quarter production and cost data, we have made the following changes to our earnings forecasts: Roll forward and update of model for recent commodity prices and FX values; Reductions in forecast gold prices for FY17 of 8% and FY18 of 5% respectively; Correction of an error in the model that resulted in real commodity prices and costs being used for one part of the FY19 forecasts The estimates for FY17 remain on the assumption that the company began formal operation on 29 November 2016, being the restructure date when the demerger of the gold business (which is now WGX) occurred from MLX (Table 2). Our target price is based on our 12-month forward NPV valuation. Table 2 Summary of changes to earnings estimates, valuations and price target for WGX Previous New Change Year ending 30 June 2017e e 2019e 2017e e 2019e 2017e 2018e 2019e Prices & currency Gold (Spot, US$/oz) 1,428 1,475 1,425 1,314 1,400 1,425-8% -5% 0% US$/A$ % 0% 0% Gold (Spot, A$/oz) 1,917 1,967 1,900 1,759 1,867 1,900-8% -5% 0% Equity production & costs Gold (koz) % -5% 0% Gold all in sustaining cost ($A/oz) 1,248 1,264 1,243 1,236 1,268 1,234-1% 0% -1% Earnings Revenue ($m) % -7% 5% EBITDA ($m) % -5% 23% EBIT ($m) % -16% 23% NPAT (adjusted) ($m) % -14% 22% EPS (adjusted) (cps) % -14% 22% PER (x) % 87% 30% EPS Growth (%) na 122% -5% na 199% 35% na 63% -743% DPS (reported) (cps) % -20% 0% Yield 1.4% 3.5% 3.5% 0.4% 1.8% 2.2% -69% -50% -37% Net debt/equity na na na na na na na na na Valuation ($/sh) % -14% -10% Price Target ($/sh) % SOURCE: BELL POTTER SECURITIES ESTIMATES NOTE: FY17 ONLY EXTENDS FOR ABOUT SEVEN MONTHS FROM 29 NOVEMBER 2016 TO 30 JUNE 2017 Valuation of $2.60/share Our valuation of WGX (Table 3) is based on: A sum-of-the-parts DCF valuation has been estimated for each of the current gold operations (including the soon-to-be operational Fortnum Gold Project) using a discount rate of 10%. The Rover Gold Project, which is not in production, has been risk weighted to reflect its development uncertainty. Key modelled assumptions, as follows: Page 5

6 1. Gold AISCs are forecast to be in the range of about A$1,230 A$1,270/oz for the next three years (FY17 to FY19) as the company continues to ramp-up existing operations and expand production with the addition of output from the Fortnum Gold Project and in particular from the addition of substantial output from the Big Bell mine from about the second half of 2018; 2. Sustaining capex of around $19mpa; 3. Annual exploration spend of around $15-20m; and 4. The Rover Project is at the feasibility stage. Subject to a positive feasibility study outcome, which is likely to include establishment of decline access to enable more detailed underground drilling and sampling, the project is likely to be developed in the next few years. Initial operation is likely to be a modest scale underground polymetallic mine and conventional processing plant targeting production of about 50koz of gold equivalent in the form of gold bullion and a copper-bismuth-gold concentrate, but processing may be possible on a tolling basis with another potential operator in the district. Recent exploration has also encountered significant zinc-lead-silver mineralisation at the Explorer 108 and Clarity Prospects. Table 3 - WGX valuations DCF sum-of-parts valuation A$m $/sh 1,2 A$m $/sh 1,2 A$m $/sh 1,2 Higginsville Gold Operation (incl Mt Henry) South Kalgoorlie Operations Central Murchison Gold Project Fortnum Rover Project Exploration and other Corporate (30) (0.10) (26) (0.08) (22) (0.07) Total enterprise value Net cash / (debt) Equity Value , SOURCE: BELL POTTER SECURITIES ESTIMATES NOTES: 1. MAY NOT ADD DUE TO ROUNDING AND DILUTION; 2. BASED ON DILUTION OF 315.7M SHARES; 3. INCLUDES CASH FROM EXERCISE OF EMPLOYEE OPTIONS. Valuations sensitive to gold prices Valuations of WGX are very sensitive to gold prices because the company is a large (and growing) producer with average forecast AISCs that are slightly higher than the sector averages. We have tabulated a range of valuations for WGX at different gold price forecasts (Table 4). On the basis of our sensitivity analysis, we estimate the share market is currently valuing WGX using a gold price forecast of a little under US$1,400/oz. Note that our valuations in Table 4 use the same US$/A$ exchange rate of around 0.75 as our forecasts in the summary financial table (Table 5 on page 9). Table 4 Valuation sensitivities for WGX at different gold price forecasts Gold Price (US$/oz) Now +12 months +24 months 1, , , , , , , , , SOURCE: BELL POTTER SECURITIES ESTIMATES Page 6

7 Westgold Resources Limited (WGX) Company description The company was formed in December 2016 by the demerger of the gold business from Metals X Limited. WGX is a significant and growing gold producer with four operations in Western Australia and a development project in Northern Territory. Current gold production is running at an annual rate of around 300koz at an average AISC of just under A$1,200/oz. WGX s gold production is expected to increase to about 450koz over the next few years. The company also has significant exploration activities, mainly involving a near mine focus. WGX s principal assets are all 100% owned and include the Higginsville Gold Operation (HGO) near Norseman which includes the nearby Mt Henry deposit where open pit mining has just begun and will become the main ore source with the closure of the Trident underground mine; the South Kalgoorlie Operations (SKO) near Kalgoorlie where the main ore source is the HBJ underground mine supplemented by nearby open pits and several interests in the surrounding area such as at Bulong to the east of Kalgoorlie that includes a 50% profit sharing interest in the Cannon Gold Project with Southern Gold Ltd (ASX SAU, not rated) - where gold production comes from the ore being treated at SKO along with ore from the adjacent Georges Reward Project and from Gunga West near Coolgardie to the west of Kalgoorlie; the Central Murchison Gold Project (CMGP) near Meekatharra, which commenced production in late 2015 and is currently undergoing ramp-up; and the Fortnum Gold Project (FGP) north of Meekatharra that is in the process of initial commissioning with first gold production scheduled to begin in March The Rover Project near Tenant Creek in the Northern Territory contains a high grade gold-copperbismuth Resource in the Rover 1 (and similar mineralisation at the Explorer 142 Prospect) that is expected to be further evaluated by exploration decline prior to potential production from about late in FY19 and significant zinc-lead-silver mineralisation nearby. Valuation Our valuation of WGX is principally based on NPV estimates for the company s operations. We have applied varying risk-weightings to the NPV-based estimates for the nonproducing assets to reflect their preliminary nature and development uncertainty. Investment thesis: Buy, TP$2.60/share (previously $3.02) WGX s first production report as a listed standalone entity showed continued overall growth in the business s gold production, which was bolstered by the planned final stages of the Cannon mine. We have revised our earnings forecasts and valuations to reflect the latest production and incorporate revised gold prices. While lower, our near term forecast gold prices are above current spot prices as we expect gold to rebound further. We have reduced our FY17 and FY18 estimates by 37% and 14% respectively but we have raised our FY19 estimate by 22%. Our 12-month forward NPV-based target price is reduced by 14% to $2.60/share. Buy recommendation retained. Page 7

8 Risks of investment - Commodity price and exchange rate fluctuations. The future earnings and valuations of exploration, development and operating resources companies are subject to fluctuations in underlying commodity prices and foreign exchange rates. - Operating and capital cost fluctuations. Costs for exploration, development and mining activities can fluctuate widely and cause significant differences between planned and actual operating and capital costs. Key operating costs are linked to the cost and availability of energy and labour. - Resource growth and mine life extensions. Future earnings forecasts and valuations may rely upon exploration success and resource and reserve growth to extend mine lives. - Regulatory changes risks. Changes to the regulation of access to infrastructure; to environmental approvals; and to taxation (among other things) can impact the earnings and valuation of resources companies. - Operating and development risks. Mining companies assets are subject to risks associated with their operation and development. Risks for each company can be heightened depending on method of operation (e.g. underground versus open pit mining). Development assets can be subject to a wide variety of approvals processes and timelines and to weather events, causing unforeseen or unexpected delays to commissioning and commercial production. - Funding and capital management risks. Funding and capital management risks can include obtaining reasonable and ongoing access to debt and equity finance, maintaining covenants on debt finance, managing dividend payments, and managing debt repayments. - Inappropriate acquisition risks. The acquisition of other assets can divert management effort from the current focus and may lead to reduced overall returns. Page 8

9 Westgold Resources Ltd as at 7 February 2017 Recommendation Buy Price $2.25 Target (12 months) $2.60 Westgold Resources Ltd (WGX) 7 February 2017 Table 5 - Financial summary PROFIT AND LOSS FINANCIAL RATIOS Year ending 30 Jun Unit 2015a 2016a 2017e 2018e 2019e Year ending 30 Jun Unit 2015a 2016a 2017e 2018e 2019e Revenue $m VALUATION Operating expenses $m (220) (484) (536) NPAT (adjusted) $m EBITDA $m Adjusted EPS c/sh Depreciation and amortisation $m (52) (102) (116) EPS growth % na 199% 35% EBIT $m PER x 25.3x 8.5x 6.3x Net interest $m DPS c/sh PBT $m Franking % 0% 100% 100% Tax expense $m (10) (33) (47) Yield % 0.4% 1.8% 2.2% Impairments/write-offs/other $m FCF/share c/sh (5) NPAT (reported) $m FCF yield % -2% 14% 20% Abnormal items $m EV/EBITDA x 6.7x 2.8x 2.2x NPAT (adjusted) $m PROFITABILITY RATIOS EBITDA margin % 29% 31% 33% PROFIT AND LOSS (INTERIM) EBIT margin % 12% 16% 19% Half year ending Unit Dec-16e Jun-17e Dec-17e Return on assets % 5% 13% 14% Revenue $m Return on equity % 9% 21% 23% Expense $m (28) (192) (238) LIQUIDITY & LEVERAGE EBITDA $m Net debt / (cash) $m (127) (221) (348) Depreciation $m (7) (45) (51) ND / E % nc nc nc EBIT $m ND / (ND + E) % nc nc nc Net interest expense $m PBT $m ASSUMPTIONS - Prices Tax (expense)/benefit $m - (10) (14) Year ending 30 Jun Unit 2015a 2016a 2017e 2018e LT real Impairments/write-offs/other $m Gold - Spot US$/oz 1,224 1,168 1,314 1,400 1,500 NPAT (reported) $m Hedging - koz koz na na Abnormal items $m Average Price A$/oz na 1,578 1,631 1,633 na NPAT (adjusted) $m Average Realised Price A$/oz 1,541 1,496 1,607 1,825 2,000 CURRENCY CASH FLOW USD/AUD US$/A$ Year ending 30 Jun Unit 2015a 2016a 2017e 2018e 2019e OPERATING CASHFLOW ASSUMPTIONS - Production (equity share) Receipts $m Year ending 30 Jun Unit 2015a 2016a 2017e 2018e 2019e Payments $m (232) (469) (519) Gold Division koz Tax $m - (24) (41) Gold production - Higginsville koz Net interest $m South Kalgoorlie Operations koz Other $m Central Murchison koz Operating cash flow $m Fortnum koz INVESTING CASHFLOW - Total koz Capex and exploration $m (70) (101) (100) All in sustaining costs - Higginsville A$/oz 891 1,364 1,146 1,312 1,446 Other $m (15) South Kalgoorlie A$/oz 1,248 1,477 1,335 1,383 1,429 Investing cash flow $m (85) (101) (100) - Central Murchison A$/oz - 1,322 1,222 1,145 1,007 FINANCING CASHFLOW - Fortnum A$/oz - - 1,402 1,457 1,500 Net equity proceeds $m Total A$/oz 937 1,390 1,236 1,268 1,234 Debt proceeds/(repayments) $m Dividends $m - (3) (12) VALUATION Other $m Issued capital Unit Financing cash flow $m 110 (3) (12) Ordinary shares m Change in cash $m Unlisted employee options m 11.0 Total Issued Securities m BALANCE SHEET Current + 12 months + 24 months Year ending 30 Jun Unit 2015a 2016a e 2018e 2019e Sum of parts valuation $m $/sh 2 $m $/sh 2 $m $/sh 2 ASSETS Higginsville Gold Operation Cash & short term investments $m South Kalgoorlie Operations Accounts receivable $m Central Murchison Gold Project Inventory $m Fortnum Gold Project Mine development and PPE $m Rover Exploration & evaluation $m Other exploration and shareholdings Other $m Corporate (30) (0.10) (26) (0.08) (22) (0.07) Total assets $m Enterprise value LIABILITIES Net cash / (debt) Accounts payable $m Equity value , Borrowings $m Other $m SUBSTANTIAL & SIGNIFICANT SHAREHOLDERS Total liabilities $m Shareholder M Shares Interest SHAREHOLDER'S EQUITY BlackRock Group % Share capital $m APAC Resources Ltd % Reserves $m Jinchuan Group Limited % Retained earnings $m Directors and management % Non-controlling interest $m Total equity $m Notes. 1. Proforma as per WGX demerger document October Based on diluted capital of 315.7m; may not add due to rounding Weighted average shares m Includes cash from assumed exercise of options SOURCE: BELL POTTER SECURITIES ESTIMATES Page 9

10 Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as Speculative a return of >30% is expected. Research Team Staff Member TS Lim Sam Haddad Jonathon Higgins Title/Sector Head of Research Phone tslim shaddad jhiggins Hold: Expect total return between -5% John O Shea joshea and 15% on a 12 month view Tim Piper tpiper Sell: Expect <-5% total return on a 12 month view Chris Savage Jonathan Snape John Hester Healthcare csavage jsnape jhester Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an Tanushree Jain Financials TS Lim Lafitani Sotiriou Resources Peter Arden David Coates Associates James Filius Healthcare/Biotech Banks/Regionals Diversified Resources Resources Research Associate tnjain tslim lsotiriou parden dcoates jfilius exceptionally high level of capital risk and volatility of returns. Bell Potter Securities Limited ACN Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives ( relevant personal circumstances ), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arraignment with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document. Peter Arden owns shares in WGX. Disclosure: Bell Potter Securities acted as Co-Manager for the $100.6m placement by MLX in August 2016, prior to the demerger, and received fees for that service. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner; (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report; and (3) The Analyst responsible for this report does hold an interest (64,307 shares) in the securities of Westgold Resources Ltd at the date of this report. Page 10