Shares in Westgold Resources Ltd (ASX: WGX) are up more than 40% over a 12-month period, but according to the analysts at Macquarie, there's further upside in the stock yet.
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Organic growth locked in for the medium term
Westgold recently released its FY27 production guidance and an updated outlook for the next three years.
The company said in that release that it was fully funded to increase its gold production from 385,000 to 425,000 ounces in FY27 to 460,000 to 510,000 ounces in FY29.
The company added:
The plan is underpinned by increased Murchison ore availability, expansion of the Cue and Meekatharra processing hubs and investment in Westgold's largest mines. This investment is expected to lift production, improve mill utilisation and reduce all-in sustaining costs to $2,640–$3,000/oz by FY29 on an FY27 real-cost basis.
Westgold said the outlook was a base case, with potential material upside from opportunities not factored in at this stage.
Foremost among these was the Fletcher Zone at the Beta Hunt mine, which the company said was the largest organic growth opportunity.
The company added:
Once developed, and supported by a larger Southern Goldfields processing hub, current internal conceptual studies indicate Fletcher could add approximately 140kozpa to Group production and position Westgold to deliver more than 600,000ozpa
Westgold said it would be investing $50 to $75 million into exploration and resource definition drilling in FY27, and more than $150 million over three years.
Westgold Managing Director Wayne Bramwell said:
Westgold's updated 3YO is a high confidence, executable organic growth plan lifting Group production towards 500,000 oz in FY29. This plan is fully funded with Group All-In Sustaining costs forecast to fall as the benefits of higher-grade ore availability and expansion of key Murchison mines and processing capacity to >7Mtpa are realised, delivering enhanced Group cashflow. The capital program reflects a deliberate decision to prioritise Murchison investment and utilise Westgold's strong balance sheet, improving reserve confidence and growing mining inventories to invest ahead of production.
Westgold Resources shares looking cheap
Macquarie said in a research note to clients that Westgold's capital expenditure over the three-year outlook came in at 36% higher than consensus estimates.
They said on the positive side of the ledger, the growth plans were underpinned by solid ore reserves, "and WGX has the balance sheet to undertake the mine development and mill expansions''.
Macquarie has a price target of $7 on Westgold shares compared to the current share price of $5.50.
If achieved, this would constitute a return of 27.3%, not including dividends.
Westgold is valued at $5.83 billion.
