What will Teck do?What will Teck do?Here is how I view it. I invitecomments on my assumptions and rough calculations.
1)Would Teck take the 75% option and pay 4 timesCUU’s cumulative expenditures?
If you consider the following, it is a “no-brainer”.
a. Assumeafter CUU has spent $60 million Teck exercises its option to buy back 75% for60x4= $240 million. Assume further thatTeck pays this up front (which is not the real case). CUU currently has 376.9 millionfully diluted shares (including the recent 4.4 million flow through shares). Enabling Teck to own 75% is equivalent toissuing 3 times the present shares to Teck:376.9*3 = 1130.7 million. Thusafter Teck dilution, there will be 376.9 +1130.7 = 1508 million sharesoutstanding. Teck will be getting theirshares for $240/1130.7 = 21 cents assuming Teck puts all their money up in alump sum.
b.What are 1508 million shares worth?The Sept 2008 Preliminary Feasibility Study gives a NPV of $4790 millionat 5% discounting and $2760 million at 8% discounting. Let’s use $4790 as the value, since currentmetal prices are much higher and so is the likely resource. $4790/1508 = $3.17 per share ($2760/1508=$1.83). Thus, Teck would be paying 21 cents forshares worth at least $1.84 and probably closer to $3.17. From this, we can conclude that Teck will notleave CUU (or anyone who buys CUU) with 100%.
2)Would Teck then go further and purchase CUU’sremaining approx. 25%? Or, would theypurchase the 25% before the feasibility study is complete and the back-inagreement kicks in? That depends uponhow much they (or anyone else) would have to pay to get the shares. Obviously,they wouldn’t get them for 21 cents.But, they could probably get them for something less than $3.21 at thepresent time.
The big unanswered question is the new value for NPV establishedin the upcoming feasibility study. Willit be greater than $4.79 billion at say a 8% discount rate? Some estimateswould be welcome.