Western Copper and Gold Corp T.WRN

Coffee & Casino

[Heywood_Silvers]

I took a peek at Kaminak's Coffee project's NPV (using 5% discount rate) prior to GoldCorp's buyout in 2016 and it was $455 million.  Casino's NPV comes in at 8.5 times that NPV.  GoldCorp paid $520mm, which applied at 8.5x = $4.4 billion.  We all know that Goldcorp overpaid for Coffe, but by how much?  50%?

Knock 50% off $4.4 billion and you arrive at about a $3 billion offer isntead of $4.4 billion.  Coffee and Casino are in the same neighbourhood, and knocking off that 50% brings us back to a more reasonable/conservative price.  What is $3 billion divided by the non-RIO shares?  $22 a share.

So, one calculation gives me $18 to $20.  Another one gives me $22.  Let's just call it $20, OK?  I have a finance background similar to those who will be negotiating with RIO.  They see the same things I am seeing.  They, like me, will not entertain any offers that are not reasonably in the vicinity of $20 a share.

And RIO isn't going to walk away from a deal if they have to throw in a few bucks extra per share to seal the deal - this is what is called goodwill and it happens all the time in every industry during M & A.  RIO will have spent too much time and effort and resources to lose a deal because they wanted to shave off a few dollars per share on the offer and risk irking the BoD.

This would be akin to you and your better half spending a lot of time and money finding a new house and then before you sign on the dotted line you let the whole deal fall through because you don't want to pay the 1% closing cost to the bank.  You aren't going to do that, you'll write off the cost paid to the bank as "goodwill" and finish what you started.  The broker makes their money, you walk away happy with your purchase.  It is a win-win.  That is what the BoD and RIO are pursuing, the win-win where everybody is happy.

[Sooner]

really just hard for me to understand how we are going to bridge such a big gap between $2 usd and $20 usd in reasonably short order (ie - 1 year or so). I mean in order to do that...Rio/WRN would have to be working in concert together to start getting our market cap higher. What's going to do it? Doesn't appear that the Rio partnership is having lasting impact on share price appreciation.

[Heywood_Silvers]

I wasn't around for the first rodeo with Western Silver, but those that were say it ran up really fast within a year from under $1 to the buyout value of $18ish. My gut tells me that the closer we get to the end of this 18 month window the price will be pushed up in anticipation of a buyout. The dust should settle here probably in the $1.80 range and then slowly march towards $3 again. 

[EvenSteven27]

Heywood, I can verify. I was there with Western Silver and the Penasquito deal. I DID ride it from .90 to $18ish in under a deal. I knew it would break, but I never dreamed it would break so far beyond my lucky stars. Believe your take on the next year is spot on. Exactly same as how it happened with Western Silver. Believe Dale has retired for three reasons: 1. He's done it all (nothing left

[EvenSteven27]

Should read "I did ride it from .90 to $18ish in under a year"... either typo or darn Microsoft spellcheck...probably both. 

[Sooner]

Hey - and i personally don't understand why WRN doesn't allow Rio to start buying shares on the open market. It would be nice if Rio were able to purchase a large chunck of shares from the day traders and those in it for a quick buck to lock those up from even trading and then they would be forced to deal with the other 70% of the shareholders who are holding for a bigger return! I mean

[jclarke042]

Any company working under a CA has information to material, non-public information and would certainly agree to a standstill in exchange for that information. Can't use that info & start buying on the open market.  Further, it should be obvious that if Rio buys on the open market, that money isn't going to WRN to help advance the project.

[Sooner]

didn't Rio also have privlidged information when they agree to purchase 8% of our shares @ $2.17 per share? Why can't WRN simply use some of their cash to start buying shares on open market and sell said shares to Rio to take those out of circulation and get into strong hands that aren't day trading penny flippers? Personally, I don't see why we need so much cash on hand right

[dfwrgk]

Perhaps because a positive as it seems for a deal with Rio, it's not an absolute.  Which means as wise and conservative Management should contemplate, they must continue to plan to go-it-alone indefinitely and or await for other options. Having cash is very smart. But yes it would be quite nice to see some shares bought back!  Even an announcement of a small amount, perhaps a million

[jclarke042]

I'd be supportive of a share buyback. If we have US 50m, I'd buy back 10m shares at US2.50, then retire them. Rio's share would increase simply from the lower # of shares outstanding.

[jclarke042]

We can't buy back enough shares to make Rio's 11.8m shares equal to 12.5% of the shares outstanding, but we can get close. For everyone hoping Rio buys in for 12.5, we'll have to issue them approx 8m shares at the current count.

[jclarke042]

Another good way of looking at this is: Goldcorp paid 114% of the NPV. Using the admittedly conservative NPV of US$1.875 billion after tax, base case, phase 1 discounted at 8%, you get US$2.15 billion, or around $15/share. 

[metalhead666]

Which of course is why it's trading UNDER $2 US now.  

[Sooner]

Clark - seems stupid for them to pay that much though...114% of NPV is just crazy 

[jclarke042]

So is our board accepting US$6/share.

[jclarke042]

Does paying 100% NPV sound crazy when considering a project with low: jurisdiction, permitting and time risk? It does? Ok, so using our low risk, let's consider 5% discounted after-tax NPV - US$3.15 billion. Is 70% NPV sales price more appropriate for you? Ok. Still approx US$ 2.2 billion.

[Sooner]

So Rio spends $2.2B plus $3B capex for total of $5.2B. WRN shareholders get $2.2B and Rio gets Future cash flows discounted at 5% of $3.1B? sorry - seems unlikely imho. More likely Rio would want less risk and target 35-40% NPV 

[Heywood_Silvers]

Sooner, I fully expect that RIO will buy WRN via a share exchange.  The $$ saved by issuing shares will more or less cover the capex. Remember, in any NPV calculation, the PV is determined by taking capex into consideration already.  I know this project is easily over $4 billion in NPV fully considered.  If RIO issues around $3 billion in shares that yields around a 50% return

[metalhead666]

No intelligent person should listen to a word you babble. Everything you utter is total fantasy. Make believe. Wish thinking. The stock is under $2  you fool. The market has spoken. RIO will probably walk but if not they won't offer $3 because that's all it's worth sitting in the wilderness without permits and guaranteed cost over runs up the wazoo. Low grade moose pasture. You

[Sooner]

$1B usd offer would be very difficult to turn down IMHO.

[Heywood_Silvers]

Taken in isolation, based upon all time high share price adjusted for inflation, the $1 billion figure would be a somewhat legitimate offer.  But, we aren't operating in isolation.  The BoD's duty is to sell not only the steak but also the sizzle. RIO will have a certain price where they would simply walk.  Will they pay 100% of NPV or $4 billion or $30 per share? 

[Sooner]

Hey - very good point. Technically I guess the first step is to agree on the metal pricing and discount factor to be used to get to NPV. That might take months all by itself....

[metalhead666]

You are out of your skull.  "Goodwill" is for a brand, logo or name or customer base none of which WRN has.  You clearly are out of your mind if you think this is all about playing nice and making everyone happy.  Even more out of your skull if you think RIO will pay 11x the current share price! 

[jsladek]

Goodwill is an accounting concept that is used to represent the difference between what is paid for something in excess of its fair value. It represents the premium that someone is willing to pay to get the company. Brand recognition and customer base are examples of why a purchaser might pay a premium for a company, but they are far from the only reason. For mineral exploration companies they

[metalhead666]

I made this point yesterday when the lunatic Heywood babbled about "good will"....there's no "goodwill" on a patch of dirt.  More proof that all the dreamers here know nothing of which they babble.

[MetalMinded]

Wrong, the value is the NPV of the metals in the gorund and work that has been completed.  The buyout vlaue si this less the effort and costs to get those plus an expected return on investment for the buyer.  

[jsladek]

Missed some words "So if somebody buys WRN at its current price, there would be about $270 MM in the deal" should read "So if somebody buys WRN at its current price, there would be about $270 MM in Goodwill generated in the deal"