WAF 0.56% 44.8¢ west african resources limited

for all of us who should of gone to spec savers lol!!! According...

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    for all of us who should of gone to spec savers lol!!!
    According to Macquarie analysis RSG is undervalued - article from this morning The Aus:


    As exploration dries up, are we running out of gold?
    The gold industry has endured a rollercoaster ride in the 21st century to date, with the gold price rising from $US255 an ounce in 2001 to $US1900 in 2011, before falling to $US1050 by the end of 2015.
    The soaring price in the noughties prompted global gold miners into aggressive debt-funded M&A programs, notes global consultancy group McKinsey & Company. But the near halving of the price from 2011 forced now debt-heavy miners to take hefty impairments and initiate dramatic cost-saving programs.
    In fact, between 2012 and 2017, all-in sustaining costs (AISC) declined by 20 per cent to $US879 an ounce.
    The gold price has since recovered some ground (to $US1300 an ounce at the time of writing) and the initiatives taken beforehand mean large gold miners are in a much healthier condition enjoying stronger cash flows, leaner cost structures and deleveraged balance sheets.
    But what miners were not doing while engaging in this cost and debt rationalisation phase was investing in high-cost, high-risk exploration.
    Now McKinsey and Co has issue a report on the global gold market, revealing that gold reserves have declined by about 26 per cent to 713 million ounces due partly to a dramatic 70 per cent reduction in exploration spending.
    “This raises the uncomfortable prospect of a looming reserve crisis,” McKinsey and Co warns.

    During the noughties, miners sought to boost reserves through M&A, with the annual acquisition value peaking at $US38 billion in 2011. The average price paid per ounce for acquired reserves in this period was often up to 300 per cent on prices a decade earlier. Such value destruction as a result of aggressive M&A means miners today are far more cautious at resorting to this approach to replenish reserves, McKinsey observes, despite price/earnings multiples of potential M&A targets having fallen back to decade lows.
    Exacerbating the reserve replenishment challenge has been a lack of exploration success. Only a handful of greenfield projects have delivered significant gold discoveries above six million ounces since 2006, and there are long lead times between discovery and production. As a result, relying on traditional greenfield strategies may not be the solution for growth, either.
    As McKinsey suggests, the gold industry finds itself at an inflection point between the past cost-out and balance sheet deleveraging era and today’s need to focus on growth and reserve replenishment. Investors in gold miners looking for improved returns are unlikely to support the traditional means to reserve replenishment — significant M&A programs.
    “The future strategic options to drive growth will differ across industry players,” McKinsey suggests, “but all players will need to consider a mix of organic [exploration] and inorganic [acquisition] approaches if they want to return to growth in an economic and sustainable way”.
    For Australian investors it is worth noting that ASX-listed West African gold developers Resolute Mining (RSG), Perseus Mining (PRU) and West African Resources (WAF) are trading at a 26 per cent discount in price to net asset value terms to the wider gold market and a 67 per cent discount in enterprise value to 2021 fiscal year production terms.
    Yet at the same time, each of these developers is expected to deliver some of the highest rates of growth in the sector over a three-year horizon.
    An element of geographic (sovereign) risk will always be present. A recent report from Macquarie concedes that risk, but also suggests that with high-quality geology and projects on the cusp of delivery, there is strong potential for a production-led rerating in a similar fashion to that enjoyed recently by Gold Road (GOR) and Alacer Gold (AQG).
    The ramp-up of Resolute’s Syama underground project in Mali is expected by Macquarie to reach its planned 2.4 million tonnes per annum mining rate late this year. Optimisation work at the company’s Ravenswood mine in Queensland is intended to lift production to above 5mtpa.
    Development of Perseus’s third mine at Yaoure in the Ivory Coast is expected to more than double the company’s production outlook to about 500,000 ounces a year by 2022. Yaoure development is fully funded through a mix of debt and cash flow. First production is expected by late next year.
    West African’s development of the Sanbrado project in Burkina Faso is well under way, Macquarie notes. The company continues to extend the high-grade underground resource, offering the potential for further mine life extensions. Over time, Macquarie expects the bolstered earnings potential of the three miners to unlock further growth.
    Greg Peel is a senior writer for the share research service www.fnarena.com
 
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