Western Copper is an Obvious Takeover Target (7 minutes)

If you’ve owned Western Copper and Gold (WRN), it goes without saying that it’s an exciting stock to follow. We bought a position for clients in October (where suitable) and the stock is up about 25% since then.

We like the company for three distinct reasons: good asset, good geography, and good management.

Good Asset

We’ve talked before about copper. This is a base metal that will be consumed more and more into the future as electric vehicle adoption grows. Though 9% of global passenger vehicles are presently electric, the CEO of the oil giant ExxonMobil recently predicted that by 2040, all new cars manufactured will be electric. Furthermore, China is the largest copper consumer. As the region continues to loosen its zero-COVID policy, copper demand will propel its price higher.

WRN’s flagship project is the Casino mine in the Yukon. With 7.6 billion pounds of copper and 14.5 million ounces of gold, this is a huge project. To put that into perspective, the Casino project is the fifth largest undeveloped copper-gold project controlled by a junior mining company.

Good Geography

Despite our country’s flaws, Canada is a safe geopolitical jurisdiction. We subscribe to the rule of law, protests are mostly peaceful, and our elections are orderly.

Copper companies situated in other parts of the world often fear expropriation and arbitrary government decisions. Just last week, the Panama government and First Quantum failed to reach an agreement on profit-sharing. Consequently, the government ordered First Quantum to shut down its flagship mine. Following the announcement, the stock collapsed 15% on the week.

Good Management

WRN’s CEO, Paul West-Sells, has done a great job delivering a new feasibility last June and attracting foreign investors. Global mining giant Rio Tinto – whose market cap is US$114 billion compared to WRN’s US$0.265 billion — made a strategic investment last year to buy 8% of WRN’s stock at $25.6 million. Along with the purchase, Rio signed a shareholder rights agreement. The agreement enabled Rio to have a non-voting board observer and participation on the technical committee. Rio also had the option to extend the agreement for another year, which was exercised last month. This shows interest in the project.

We expect Rio Tinto to buy the remainder of the company in the first half of 2023. It’s a large project in a politically safe jurisdiction that will supply the world with a commodity it needs.