Financial Press: WRN - Dale Corman's Western Copper and Gold challenge: Developing a low-risk Casino

In a bear market that has laid waste to more than a few junior resource companies, veteran mining executive Dale Corman is a survivor. As chairman and CEO of Western Silver, the entrepreneur developed Peñasquito from a Rio Tinto/Kennecott castoff into a world-class deposit that was subsequently taken over at a huge premium. The mine in Mexico is now one of Goldcorp's cornerstone assets and produced 411,300 ounces last year for the world's largest gold miner.

Corman, chairman and CEO of Western Copper and Gold, got his start in the business as a mining analyst in the early 1960's. Not surprisingly, the soft-spoken but confident dealmaker takes the long view when it comes to developing resource deposits.

"I've seen markets like this come and go before," Corman says in a conversation recently at his Vancouver office. "The long-term outlook for copper and other base metals is exceptionally good. Either we're going to have a real shortage of copper in the next three or four years or we're going to go into a downward slide where every country in the world is going to go into recession. I don’t see a no-growth world."

Dale Corman lists WRN on the NYSE August 15, 2011 (Company).

Taking the long view has been a winning formula for Corman - "I've never done a deal that didn't make money for shareholders."

His latest endeavour is advancing Western Copper and Gold's world class Casino copper-gold deposit in the Yukon. Its name may conjure up images of blackjack and roulette, but the advanced-stage porphyry project is among the most derisked mining projects in North America.

CASINO

Western released a pre-feasibility study for Casino in May 2011 and completed a feasibility study in January. The latter study showed a 20.1% after-tax IRR and a $1.8-billion NPV at an 8% discount rate, based on US$3 copper and US$1,400 gold. (Dropping metal price assumptions to US$2.65 Cu and US$1,200 Au still adds up to an IRR of 15% and a NPV of $960 million.)

Casino hosts Proven and Probable reserves of 4.5 billion pounds of copper, 8.9 million ounces of gold and 65 million ounces of silver, with plenty of potential upside provided by expansion of the open pit. Capital costs are estimated at $2.46 billion, with a 3-year payback and a 22-year mine life.

A stunning aerial of the camp at Casino (Company).

Casino has "excellent" economics, Corman says, and is sheltered from the infrastructure and geopolitical risks of peer projects.

"This is a low-cap project and the grade is relatively high for the first 3 or 4 years, which allows for quick payback," he says. "In terms of size, Casino competes exceptionally well with any project you might find in North and South America."

In the first four years of operation, annual output at Casino is projected at 399,000 ounces of gold, 245 million pounds of copper, 15 million pounds of molybdenum and 1.8 million ounces of silver.

Location of the Casino deposit (Company).

On the all-important financing front, Western also compares favourably to junior mining peers. The company had $30 million as of June 30 - enough cash to last through 2016 and to complete permitting and basic engineering. In August 2012, an unidentified numbered company acquired a 5% net profit interest in the Casino project for $28 million from a third party. That was later converted by Western to a 2.75% NSR for an additional $32 million.

Purchasers of the NSR believe the project will go into production. The total $60 million the investment group paid for a 2.75% NSR gives an indicated value of $500 million to the Casino project. Net of cash, the company’s current market capitalization is approximately $35 million.

BEAR MARKET

Like most junior mining companies, Western Copper and Gold shares have been pummelled. The stock dropped to .50 cents from highs above $4 in early 2011, although its chart has been strengthening lately, with WRN's shares last trading at .69 cents. The market is valuing Casino at just $35 million when you subtract Western Copper and Gold’s cash pile from its market capitalization.

Image: http://media.ycharts.com/charts/ff43c0e6bfd2642058bebbb995729ec3.png

WRN data by YCharts

This for an open-pit mine that would create 600 full-time jobs and increase the Yukon's GDP by 10%, according to an economic impact report by MNP.

It's no wonder Corman describes Western Copper and Gold as a "tremendous call option on gold and copper, with no expiry date" - particularly at these prices.

It's not just talk, either: the veteran miner has spent about $327,000 buying WRN shares in the past year, according to INK Research, and now owns 5,801,100 shares, a 6.2% stake.

"If you know what you're doing, and you're happy with the asset, why not buy it instead of somebody else's story?" Corman says. "I expect that as we move through the process, the markets will come back and justify a much higher valuation than what we're currently seeing."

How much higher of a valuation? Corman's believes a tenfold increase is possible within 2 or 3 years.

TRACK RECORD

Such talk would be rightly written off emanating from any number of Howe Street offices. But coming from Corman - a straight shooter with a humble disposition - it's not so easily dismissed.

Corman grew up on a small farm in Ontario but early on "decided I wasn’t going to be a farmer."

In 1961, he received a B.S. in geology from Rensselaer Polytechnic Institute in Troy, New York, and obtained Professional Engineer status in Ontario in 1972.

Corman worked as a mining analyst for an investment banking firm in the early 1960s. From 1968-1977, he was a senior officer for a group of junior mining companies headed by another mining legend, Noble Harbinson. There Mr. Corman was involved in the discovery and development of the Durham antimony mine in New Brunswick and the NBU copper-zinc deposit in Northwest Ontario. In 1977, Corman moved to San Francisco to work in geothermal exploration and production. He returned to mining in 1991.

The first project Corman took on with the original Western Copper was the Carmacks copper project, a 50-50 JV with Teck. Low metal prices put Carmacks on the shelf and he did another JV with Teck on the San Nicolas zinc-copper deposit.

In the late 1990s, opportunity knocked in the form of Rio Tinto/Kennecott disposing of their mining assets in Mexico. Corman also picked up Peñasquito, a small silver project with a large footprint, "for a very good price" from the mining giant.

When Corman bought Peñasquito, it was little more than a promising but neglected silver/base metal project. However, the Vancouver mine developer saw potential where others saw pitfalls.

"I saw enough of it to see it was going to be a project," Corman says.

He was interviewed in 2001 about Western Copper (which became Western Silver), whose two assets were Peñasquito and a minority stake in San Nicolas. Shares were trading at $1.20 at the time, giving the company a market capitalization of about $30 million.

When asked about the stock's potential, Corman replied, "Returning to the $10 range over the next two or three years wouldn’t be out of the question."

As it turned out, he did considerably better than that. Corman's hunch about Peñasquito was correct, and later drilling uncovered a gold zone that early drilling had missed.

In 2006, he sold Western Silver to Glamis Gold for $24 a share, in a deal worth a whopping $1.2 billion. The transaction made Corman and his shareholders very wealthy in the process.

"It was a home run," Mr. Corman says smoothly.

Glamis Gold and Goldcorp merged later in 2006. Peñasquito began producing in 2010 and is now one of Goldcorp's flagship assets.

Glamis Gold wasn’t interested in Western Silver's Carmacks project in the Yukon or the $35 million in cash, so Corman spun that out into the second Western Copper. He then paid Ross Beaty about $30 million in stock to acquire the Casino, Redstone and Hushamu properties. That transaction was another learning opportunity, during a career that spans decades.

"I said, 'Ross that was a pretty good deal, getting these three projects for $30 million worth of paper.'

"Ross replied, 'But I got them for nothing,' " Corman says with a laugh.

For his part, Beaty describes Corman as a "delightful man" whose smarts and positive attitude make good things happen.

"He's a veteran who's had huge wins, and he's trying to do it again," Beaty said. "He's optimistic, driven, smart and a very good guy."

In 2011, Western Copper spun out Carmacks and Redstone into a separate company called Copper North Mining and the Hushamu project on Vancouver Island into Northisle Copper and Gold.

NO DICE ROLL

The next step for Casino is permitting and Western will submit a project description to government regulators this fall.

"With low rolling hills and very little precipitation, the climate is excellent for mine-building," Corman says.

He's proud of the relationships Western Copper and Gold has established with stakeholders in the area. The focus over the next three years will be to get the project permitted and construction ready.

With many risk-averse investors still on the sidelines, Corman knows that getting the word out about Western's world-class project will be key to participating in the turnaround.

"I talk to investors, and some of them have never heard of the name Western Copper and Gold," Corman says. His goal is to build a core of solid investors who are aware of the benefits and value embedded in the company. When asked who he sees as the ideal investor, he answers the high-net-worth individual with patience but not a lot of exposure to copper or gold.

"When suddenly the light comes back on, they'll come to us rather than to another name," he says. "As we move the project towards production they'll make out extremely well."

Western Copper and Gold Corp. trades on the TSX and NYSE under the symbol WRN.

WRN Corporate Presentation ->
Casino Feasibility Study ->

Originally posted on CEO.ca

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