CMM’s 3QFY24 preliminary production result for Karlawinda was in line with our forecast. Production was down on the previous period due to major weather events that delivered 280mm of rain. CMM has trimmed its FY24 guidance range to reflect this, however, we note that the adjustment was broadly in line with our base case, and we trim our FY24 production estimate by only 1koz. Cash generation was lower than we had expected, although the variance was largely due to timing of capex payments relating to the Mt Gibson accommodation camp. We are reiterating our BUY rating on CMM and A$6.50 price target. Updates on the environmental permitting pathway for the Mt Gibson Gold project and a new reserve estimate for the project present key near-term catalysts for CMM.
Key points
Weak production result: WGX announced preliminary production for the 3QFY25 of 52.1koz, 13% below our forecast and 17% below the previous period. No mine by mine data was provided, however, WGX indicated that the loss of ounces from Paddy’s Flat underground and inclement weather across both operating centres was the key drivers behind the weaker result. We suspect that lower mined grades at Big Bell and Bluebird vs our estimates were also likely drivers of the miss vs our estimates.
Downgrading production guidance in the 2HFY24 by +20%: WGX has cut its FY24 production guidance range from 245-265koz to 220-230koz in response to the weak 3QFY24 result and a delay to the start of the Great Fingall underground until early FY25. The cut to the guidance range was 10-13% for FY24, however we note that the cut to implied 2HFY24 production guidance was 20-25%.
AISC guidance for the 2HFY24 increased by +30%: The AISC guidance range was raised by 15-17% from A$1,800-2,000/oz to A$2,100-2,300/oz. We note that the implied reduction in AISC in the 2HFY24 was 34-36%, assuming the guidance ranges for AISC reflect the upper and lower end of the range of production.
Valuation & recommendation
Incorporating the weaker 2HFY24 outlook has translated to a 30% cut to our FY24 earnings forecasts and we reduce our FY25 earnings estimate by 12% to incorporate lower grades, mainly at the Big Bell underground. Our FY26 and beyond earnings estimates are largely unchanged. We have lowered our price target 3% to A$3.10 after incorporating the weaker outlook for the 2HFY24. WGX is well funded with a cash balance and bullion of A$247m and no debt. The development of the Great Fingall mine and rising grades at Big Bell should underpin WGX’s drive to push group production beyond 300kozpa over the next two years.
Important Disclosures
Disclosure: Argonaut PCF acted as Financial Adviser to WGX in relation to the $100M Revolving Corporate Facility announced in November 2023 and will receive fees commensurate with this service. Argonaut PCF acted as Financial Advisor to WGX in connection to its takeover offer for Musgrave Minerals Limited (MGV) announced in June 2023 and received fees commensurate with this service.
Please read our important Disclaimers & Disclosures
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