Profs Cambrian Merge HypothesisCambrian Merge Hypothesis
In summary a Cline / Cambrian merger gets Cline immediate (60%) ownership in 3 large operating coal companies; and they get to keep the Iron, Uranium and gold project and a bunch of other assets.
In summery,
Step1.)
Cline and Cambrian merge on a 1 for1 basis. New company called Cline-Cambrian. Listed TSE, London and USA
Step2.)
Cline-Cambrian sells New Elk to Coal International for (a +b+c);
a) 60% ownership in Coal Internationals and
b) 23% interest in Energy Build Group PLC,
c) 20% of NEMI.
This gets Coal International 2 very large coal mines and a USA focus.
End Step2) Cline-Cambrian now owns,
a) 60% ownership of Coal International.
b) 58% ownership in Energy Build PLC
c) 38% ownership in Western Canadian.
Step3.)
Cline-Cambrian sells 20% NEMI, Lossan, Lodgepole and Clines other Canadian coal assets to Western Canadian (WTN) for 60% interest on a consolidated basis. This allows WTN to expand Willow Creek to 4 MTons per year and a controlling majority in the Anglo Belcourt Saxon joint venture. This allows WTN to grow into a another Fording Coal who has a market cap of $10 Billion. Fording will be bought out by Teck and the WTN coal fields are far to small for Teck at this stage. This gives WTN a clear playing ground to consolidate most of the other Canadian coal fields and companies. This will get WTN a market cap of $10 Billion just like Fording coal.
End Step3) Cline-Cambrian now own,
a)60% ownership of Coal International,
b)58% ownership in Energy Build and
c)60% ownership in Western Canadian.
Step4.)
Cline-Cambrian develops its massive Iron deposit. The real value of an iron mine; is its free cash flow for 50 years with no further capital investment. This allows the owner to take on debt for ultra high gearing. This is the perfect capital tool for a Cline-Cambrian hungry Mining House that is always looking for acquisitions. It uses the free cash flow to buy other companies.
Step5)
Cline-Cambrian acquires and spins out assets in a typical Mining House format to build up asset base.
Step6)
Cline-Cambrian would use the Iron cash flow to buy back its shares and its subsidiaries to build into a Teck-Cominco size company. This is how Teck started, the Mine House business model works very well.
I remember Teck buying its first shares of Cominco at $11 per share in the early eighties during a Zinc crises, it was like a mouse biting at an elephant. Who would have guessed the mouse would eat the elephant. If the mouse had Iron, it would have eaten Inco and maybe Alcan.
It’s the Iron cash flow over 50 years from the same CAPEX that makes Cline a crown jewel. The cash flow goes up with inflation and future competition has to build with future high priced dollars.
Also, your competitors can not get to your market, because of high transportation costs. Cline will sell Iron to China at $20 per ton shipping cost. Brazil Vale shipping cost is $70 per ton, on a $200 spot iron price.
The high shipping cost gives you the monopoly. Your competition is TERRIFIED to build high CAPEX plants, in case you lower your sell price below their shipping cost.
If your company is close to market, you issue a press release every 3 months telling the world you’re doing another Iron expansion. Terrify the competition even more, keep the hounds away from your door.
Iron mines have incredible economics. An iron mine in close proximity to high market demand is a printing press. Most oil wells run dry after 8 years.
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I believe the above clearly shows that to the right buyer, Cline assets are worth far greater then the earning capacity of the New Elk mine on a stand alone basis.
I recommend all shareholders of each associated company approve any such proposal.
Another company that has some synergy with Cline is Consolidated Thompson. They could have used Clines Iron and Coal assets, to sell their Canadian Iron to international markets. I posted this idea to the Consolidated Thompson Stockhouse board back in February 08. A very strong business case could be made for such an amalgamation. Consolidated Thompson has the cash in the bank to immediately get New Elk into operation.
The point I am making is that the above type amalgamations quickly release the value of all Clines assets and this would be immediately reflected in Cline share price.
The above can be used to bench mark the value of Cline today, other companies can immediately un lock massive value from Cline.
This link shows the Cambrian assets, and how Clines assets can be used to un lock the great value in both companies.
Download Investor Roadshow Presentation Spring 2008
I believe Cline will merge or be bought out before financing.