Western Copper and Gold’s Casino Project is a Good Bet in this Resource Market

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Western Copper and Gold Corporation is advancing its Casino Project located in Canada’s Yukon Territory, which contains Proven & Probable reserves of 8.4 million ounces of gold, 4.4 billion pounds of copper, 494 million pounds of molybdenum, and 61 million ounces of silver.

It was a forgettable year for resource investors in 2013. The price of gold suffered its worse annual loss in more than 30 years as it struggled to stay above US$1200 an ounce.

Copper, on the other hand, ended the year on a high note, closing out 2013 with a December gain of more than 4%.

"We've been saying for a long time that the copper market is still in deficit. The fall in stockpiles that has taken place since June is very substantial ... so it's not unreasonable for the market to be pricing some sort of short-term physical scarcity," said Natixis analyst Nic Brown in a Reuters interview.

In a research report dated December 3, 2013, Morgan Stanley analysts wrote that they believe it is unlikely that significant copper market surpluses will emerge between now and 2015. They have also increased their copper demand outlook by around 2% in 2014 and 2015.

While many junior resource stocks were hard hit during the recent tax-loss selling season, Western Copper and Gold Corporation (TSX: WRN) (NYSE: WRN) shares have surged 52% since December 13, 2013, to its recent price of 82 cents.

The Vancouver-based exploration and development company is advancing its Casino Project located in Canada’s Yukon Territory, which contains Proven & Probable reserves of 8.4 million ounces of gold, 4.4 billion pounds of copper, 494 million pounds of molybdenum, and 61 million ounces of silver.

A full Feasibility Study was issued in January 2013, indicating that the project has a $1.8 billion 8% discounted Net Present Value (NPV) and a 20.1% Internal Rate of Return (IRR), after tax. The forecast used pricing of US$3.00/lb copper, US$1400/oz gold, US$14.00/lb molybdenum, and US$25.00/oz silver.

Western Copper and Gold expects to follow in the footsteps of some other Yukon ‘White Gold District’ success stories, such as neighbouring companies Kaminak Gold’s 3.2 million Inferred ounce gold project and Capstone Mining’s operating Minto mine, which has a 440 million pound Proven & Probable copper reserve.

Overseeing the day to day operations of Western Copper and Gold is President and Chief Operating Officer (COO) Paul West-Sells, who has more than 20 years of experience in the mining industry. Dr. West-Sells obtained his Ph.D. from the University of British Columbia in Metallurgical Engineering, and has worked with BHP, Placer Dome, and Barrick in senior roles in Research and Development and Project Development.

“The main reason I think our share price has done well in recent days is that if you look at the price of copper, there was a bit of a December rally. A year ago, people were predicting a fairly big global copper surplus but now going into 2014 and 2015 there’s a perception that there will be either a balance or a slight copper deficit,” West-Sells said.

Western Copper and Gold achieved a significant milestone recently when it announced on January 6, 2014, that it has submitted its final Casino Project Proposal to the Yukon Environmental and Socio-Economic Assessment Board ("YESAB") for screening within the timeline mentioned in its forecast about a year and half ago. The company spent $18 million over six years so that it would “leave no stone unturned” in its quest to achieve a permit for its modern and sustainable mining project.

Western Copper and Gold anticipates that it will require $1 million to $2 million to complete permitting but added that it’s still on target to be permitted for construction by early 2016. The company expects its proposal to be declared adequate within in the next few months and then it will shift its focus toward Casino’s detailed engineering and financing. And with approximately $26 million in cash on hand, Western Copper and Gold is fully financed for the next three years.    

Despite the infrastructure challenges of developing a mining project in Canada’s Far North, the Yukon Territory remains an attractive jurisdiction in which to develop and extract a resource.

“The Yukon has full control over the assessment and permitting of mines. You go through one environmental assessment, which is through YESAB, and then your project is permitted. The net result is that mines are permitted and built in a much faster time frame than in other Canadian jurisdictions such as British Columbia,” West-Sells added.

When completed the Casino open-pit mine could be larger than any mine currently in production in the territory, with the potential to produce 400,000 ounces of gold and 200 million pounds of copper annually.  

Western Copper and Gold has about 100 million fully-diluted shares outstanding, giving it a market capitalization of approximately $80 million. The company had about $26 million in the bank at the beginning of the fourth quarter. The market, then, is valuing its 8.4 million Proven & Probable gold reserves in the ground at a little more than $6 per ounce with nothing be assigned to the 4.4 billion pounds of copper, 494 million pounds of molybdenum, and 61 million ounces of silver.

For investors, this presents an opportunity for substantial upside from current levels as Western Copper and Gold has become an attractive takeover candidate, especially given the level of certainty assigned to its Proven & Probable reserves.

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Chris Donaldson
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