Shares in Cambrian Mining (HGV.L: Quote surged to a 20-month high on Monday after the gold and coal mining manager announced asset sale plans and its intention tobecome a full-time miner to benefit from high prices.
( They buy Cline and go into production with New Elk coal mine and Clines Iron Project )
Its shares were up a fifth to 136.75 pence at 1133 GMT, and surged to their highest intraday levels since September 2006.
Cambrian wants to sell its 42 percent stake in Western Canadian Coal Corp (WTN.TO: Quote, Profile, Research) or find a partner to help it co-develop the asset, which it values at around 178 million pounds ($354 million), it said in an earlier statement.
The above statement is in conflict with Cambrian first statement of wanting to be a full time miner and own the earnings.
Cambrian has a problem; it needs to increase (WTN) ownership above 50% to consolidate WTN earnings into Cambrian earnings and financial statements.
Cambrian buys Cline, exchanges WTN shares for Lossan and Lodgepole and all Clines Canadian coal projects. This would get Cambrian over 50% ownership in WTN and this allows consolidation of WTN earnings into Cambrian.
Cambrian would have no problem getting 50% ownership of WTN. Mitsui owns 4.5% of WTN. Cambrian could sell Mitsui a net Smelter Return on Lossan to buy Mitsui WTN shares, or issue Cambrian shares for WTN.
Chief Executive Mark Burridge declined to say which firms would be keen on Western Canadian, but Seymour Pierce analyst Peter Hitchens said it should draw interest from Canada-based miners such as Teck Cominco, Fording or Anglo American.
The above statement is in conflict with Cambrian first statement of wanting to be a direct owner of earnings.
Teck and Fording are far to big for WTN coal projects. Anglo may be interested, but would they pay up?
"There are a lot of people interested in acquiring coal assets and the reason for that is a very strong outlook as far as coal prices are concerned," Hitchens said. "Looking forward, there is a lot of potential for growth and expansion."
WTN has outstanding growth potential especially if they get Clines Lossan project . It would be hard to find a mine company with better growth potential then WTN, why sell WTN.
Cline has other Canadian coal lands. Lodgepole is a 3 year out project. The Montana Decker Coal mine shows that Lodgepole will probably go into production.
Teck Cominco Ltd. (TCKb.TO: Quote, Profile, Research) is the world's second-largest zinc miner while Fording has a 60 percent stake in Elk Valley Coal, the world's second-largest exporter of metallurgical coal. Diversified miner Anglo American (AAL.L: Quote, Profile, Research) has operations in five continents.
"Western Canadian is a very big asset, too big a fish for us to swallow," Burridge said in a telephone interview. "We'd be most keen on the best per-share value, or a bundle of cash."
The above statement is what is best for Cambrian share price. This has to be own 50% of WTN and consolidate WTN earnings into Cambrian.
Burridge's company has a 34 percent stake in fellow AIM-listed miner Coal International (COAL.L: Quote, Profile, Research) and wants to buy the rest in a share-for-share transaction.
Coal International operates a coal mine in Virginia USA. Cambrian wants to own above 50% so they can consolidate these earnings into Cambrian.
The cheapest way to do this is for Cambrian to buy Cline who owns the option on the New Elk Mine. Cambrian would sell New Elk to Coal International.
Part of the sale exchange deal would be Cambrian getting 20% NEMI and 23% of Energy Build PLC.
Later Cambrian would sell NEMI to WTN for more shares to grow WTN.
The above is how a Mine Houses works. This is how Cambrian increased ownership in WTN and how Teck bought Cominco. The Mine House business model works very well.
Its clear that Cambrian could use Clines assets to consolidate ownership of all it present holdings. This makes Cline very valuable and even more so because of its Iron project.
Cambrian says its OWN shares are worth the equivalent of 228 pence per share, and potentially more if it can take advantage of higher coal prices and organic growth opportunities.
They get organic growth with Clines Iron project.
Cambrian owns 9% of UMC Energy, Clines Uranium project.
But Hitchens says reckons it is worth nearer 200 pence after including some debt and a small discount for operating risk.
"Cambrian are getting their hands dirty, to get 100 percent of the cashflow generated," Hitchens said, on the company's plans to become a full-time miner.
"There is always operating risk in doing this, but the companies are operating anyway. All this does is remove an intermediate layer of management." (Reporting by Hsu Chuang Khoo; Editing by David Hulmes)
50% ownership get the earnings into Cambrian financial statements. It also becomes a fully consolidated subsidiary with respect to management control and removes the intermediate layer. Cambrian can increase ownership later, just like Teck did with Cominco.
Further, Cambrian would immediately get a TSE and USA listing. This would give Cambrian world wide liquidity and investor appeal. Toronto is the mining finance capital of the world.
Clines iron project is worth hundreds of millions in free cash flow. With this free cash flow, they can increase ownership of WTN and Coal International at a later date on an as required basis. Clines Iron project is a crown jewel, it worth hundreds of millions of dollars.
There are many great Synergies between Cambrian and Cline. There are many other reasons why Cambrian must have Cline under serious consideration.
Ken Bates must be talking to Cambrian about Lossan and WTN and also UMC Energy.
Amalgamating Cambrian and Cline appears to be a good possibility.
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Click on the link below to view the Cambrian April 2008 Investor & Analyst Presentation
Launch April 2008 Investor & Analyst Presentation
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Interview with Mark Burridge, Cambrian Chief Executive, who comments on the 2006 interim results.
Click here to view the video interview.
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If not Cambrian then a better deal is being set up for Cline
MP