Is Westgold Resources Ltd a buy opportunity?

Interesting times are afoot at emerging pure-play gold producer Westgold Resources Ltd (ASX: WGX) which opened today down 1.5% at $1.57.

Westgold owns three gold projects in Western Australia and has a fourth under refurbishment, with a combined 5.5 million tonnes per annum treatment capacity.

There has been plenty of buying and selling activity of late at Westgold, the most notable being a 500,000 share pick up by managing director Peter Cook, at the cost of around $790,000.

Cook’s purchase came not long after a November 2017 announcement Westgold had formed a strategic alliance with Indonesian exploration and mining company Golden Energy and Resources Limited (GEAR) as a growth strategy to support Westgold’s Australian operations and inject some capital.

GEAR paid $67.9 million for 36 million Westgold shares at $1.88 each – slightly higher than the share price at the time – meaning GEAR has lost about $10 million on its investment taking into account the current share price.

Not only has the cash injection been useful for Westgold to develop its operations, but it has also diluted the position of previous major shareholders which includes established Hong Kong resources investment and commodities business APAC Resources.

Westgold only listed in 2016 after spinning off from diversified metals and minerals company Metals X Ltd (ASX: MLX), but announced a NPAT of $15.77 million for FY17 also giving shareholders bonus options on a 1:5 basis rather than paying a dividend.

As Westgold focuses on maintaining solid control over its operations, experts say the likelihood of building itself into a major player in the Australian gold sector is good and continued profit growth looks likely, with a half-year report due around the end of February.

Share prices in big brother gold peers Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) are travelling along well, with Evolution opening today up 4.8% to $2.80 and Newcrest sitting up 1.5% at $22.05.

Westgold is quite a way off its March 2017 share price high of $2.59 but with no bad news in the wind, a buy opportunity could be a very real prospect for investors keen on mid-cap resource stocks with solid fundamentals.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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