The Introduction outlines the purpose of the report and provides

Introduction

Introduction

The purpose of this report is to highlight the Strategic analysis of Westgold Resources Limited by studying the annual report for the year ended 2019 and 2020. The assessment focusses on the highlighting the strategic position of the company.

Westgold Resources Limited is involved in Gold mining business. Westgold is one of the top 10 gold producer of Australia. Westgold has three production facilities in Australia which are as follows:

• Northern Operating Centre (Fortnum Gold Operation)
• Central Operating Centre (Meekatharra Gold Operation)
• Sothern Operating Centre (Cue Gold Operation)

Analysis

Below is the comparative analysis of key numbers for the year ended 2019 and 2020:

The company’s topline has grown by 51% from the year ended 2019 with a positive Gross margin and Net margin.

The company has continuously utilized the 3 operating centres to increase the production volume specially during the last 2 quarters of the year ended 2020.

Group cash flow generated by operating activities increased on that of the previous corresponding year with a total inflow of $81,231,882 (2018: $14,710,955).

The company has a very healthy Debt-Equity ratio. Company has been very efficient is clearing its debt and has successfully reduced its capital commitments to $8,996,852 (2018: $20,902,157) existed at the reporting date, principally relating to the purchase of plant and equipment.

Porter’s Five Forces Analysis

Michael Porter’s 5 forces is a strategic framework that helps company to take strategic decision based on the macro economy fundamentals.

Competitive Rivalry : The rivalry among the competitors are intense and the company has been performing well as we can see a huge rise in the sales volume by 51% due to cost of goods sold being very supportive due to economies of scale.

Threat of New Entry : There is low risk of new entrants in this industry as the requirements are very complex internally (Barrier of current competition, economies of scale, etc.) as well as externally (Government approvals, compliance, regulations, etc.)

Bargaining PowerofSupplier : Suppliers are the key resources for the raw materials and the company has been efficiently managing the current set of suppliers in the year ended 2020 as we can see the Trade payables has gone down considerably (around 30%) from 85 Mn in the year ended 2019 to 58 Mn in the year ended 2020 which ensures the relationship with suppliers will be very stable at least in the medium term.

Bargaining PowerofBuyer : The customer base for the company has widened in the year ended 2020 and the company has increased their sales both of sale at spot as well as sale under the forward contract. The overall revenue growth and the reduction in the Trade receivables have ensured the relationship with the customers has been very good.

Threat of Substitution : Company has been very confident about their performance in the coming year ended 2021 with the production forecasted at 270,000 – 300,000 Oz with a lower cost of sales and AISC. Further, there might be a threat of substitution in the precious metal category with the immediate substitute being Platinum, Silver, etc. but it will be important to note that Gold buyers doesn’t deviate from their product so quickly. In case of price hike, they drop the consumption but the chances switching the product is very rare.

SWOT Analysis

SWOT (Strength, Weakness, Opportunities, Threat) is a strategic analysis done at a business level.

Strength (S) : Westgold has a strong brand portfolio and is one of the top 10 Australian gold producer. The production has been on continuous rise in the year 2020 which added an advantage on the Cost of Goods sold (COGS) and All-in Sustainable Cost (AISC) due to economies of scale and will continue to do so in 2021 which has been highlighted in the Production Guidance as well.

Weakness (W): The profitability ratio has been very narrow and in uncertain times it could lead to a negative situation. Further, the liquidity ratio have dropped from the year ended 2019 to 2020, which the company needs to take care in this COVID-19 times.

Opportunities (O) : Gold is considered as a safe-heaven investment and during this turbulent time, the demand of the Safe-heaven assets increases as the investors want to invest their money in safe asset class. So, the company has a better market opportunity in hand to cope up in this environment with an expectation of much better gold prices.

Threat (T) : Company has lowered his inventory level from 60 Mn to 46 Mn from the year ended 2019 to 2020 which might act as a threat in this current situation as the world is at a stage of lockdown and if any competitors having the stock advantage might also have a customer advantage as well now.

Corporate and Business strategy

Westgold Resources Limited achieved its tipping point growth till now in the year ended 2020 by focusing on production rise of gold output. This has been achieved by heavy investment in the three major production facilities. The production facilities has been revamped by the renovation of the mines and plants which has been closed previously.

The finance arrangement of the production increase by renovation of the mines or plants can be achieved by the below alternatives:

• Debt
• Own fund

Debt is a easy choice to make as it is a smoother process but its comes with its own set of risk and uncertainties, if the outcomes doesn’t results as planned. If the execution doesn’t resulted as planned, the company would be exposed to the risk and exposure of the Banks and Financial Institutions (FIs), which creates an adverse impact on the shareholders.

In order to avoid this, the company choose the route of own fund which means by progressively collecting and re-investing the cash flows into the expansion of the operation process without any obligation of debts payment as well as it creates value towards the company, if the outcome doesn’t happens as planned.

References

Westgold Resouces Limited. (June 2019). Audit Report. Western Australia: Westgold.

Westgold Resources Limited. (June 2020). Audit Report. Western Australia: Westgold.

WestGold Resources Limited. (n.d.). Westgold Corporation. Retrieved from Westgold resouces website: https://www.westgold.com.au/