Do insto investors expect a turnaround in Westgold?

Westgold Resources (ASX: WGX) which sits just outside the ASX 300 is seeking to raise $100m to fund the WA-based gold miner’s Murchison and Byrah expansion projects, regional corporate targets, and general working capital.

The placement is understood to have been priced at $2.10 a share, a 16% discount to the last traded price.

Within a recent presentation to potential investors, management flagged plans to ratchet up gold production by around 48% to 400,000 ounces of gold per year to by the end of FY24.

Murchison’s Bluebird underground expansion is expected to add 50,000 ounces per year, while accelerating new production at Murchsion’s Fender underground development is expected to add 30,000 ounces of gold a year.

Disappointing first half

Westgold’s latest capital raising follows on the heels of what has been a disappointing half year for the gold miner.

In the six months to December 31, the company experienced a -58% drop in net profit (NPAT). Despite a 5% increase in gold sales to 131,917oz and 3% revenue kicker from $301.8m to $311m, earnings (EBITDA) fell -27% from $144.5m, due in part to an overall costs hike of 22%.

Westgold executive director Wayne Bramwell noted that the company has recently ramped up investments at its sites and stock inventories to protect against covid and labour disruptions as virus cases rise in WA.

“The investment made in building surface stocks, increasing critical spares and consumables inventory impacted short term financial metrics but the trade-off was considered prudent as this investment can ensure future cash flows,” said Bramwell.

Is Westgold in a stronger position to deliver?

Despite the half year result, the stock appears to have attracted some underlying market support, with the share price up 27c since announcing the half year result 25 February.

Judging by the nature of the shareholder register, it has to be institutional investors supporting the stock.

While institutional investors own more than half the company, the top 9 shareholders account for more than half of the share register alone.

Despite the stock’s market cap, the company is not widely covered.

With cash generation underpinned by shrinking capex and increasing production at Big Bell, Macquarie notes that Westgold is now in a strong position to deliver on its strategy.

The broker retains an Outperform rating and $2.90 target price.

Macquarie suggests this could include another processing hub or an expansion to the existing Cue plant.