Capital intensive mining services are unpopular if trading multiples are anything to go by. This note does a deep dive into the returns, cash flow and leverage trends in recent years for Macmahon, NRW, and Perenti. We conclude the bad rap is unwarranted.
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
Argonaut | Perth
Level 30, Allendale Square, 77 St Georges Terrace Perth, WA, 6000
Phone: +61 8 9224 6888 Fax: +61 8 9225 5511
You are receiving this email because you are a client of Argonaut or you have opted in.
If you want to unsubscribe, please email unsubscribe@argonaut.com and place Unsubscribe in the subject line.
Hayden Bairstow
Executive Director, Head of Research
www.argonaut.com Level 30, Allendale Square, 77 St Georges Terrace, Perth WA 6000 Direct Line: +61 8 9224 6835 Mobile: +61 439 889 321 Email: hbairstow@argonaut.com |
Click here to access an important electronic communications disclaimer |
To access the full report please log in under the Client Area at the bottom of this page.
Argonaut’s Client Area allows you to view delayed share prices, access Argonaut’s wealth of Research as well as create custom portfolios and set up company watch lists.
If you would like to access our research please contact us to create an account.