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Western Goldfields Prepares for Production, Brings in Ex-Barrick Chief By David J. DesLauriers 24 Feb 2006 at 12:05 PM EST
TORONTO (ResourceInvestor.com) -- Resource Investor has written twice before about Western Goldfields [OTCBB:WGDF], both articles, published last summer, focused on the company’s plans to merge.
First, the idea was for Western to get together with Romarco Minerals [TSXv:R] and U.S. Gold [OTCBB:USGL]. At the time, we concluded “At the end of the day, when these three companies get into bed, they will have created a vehicle that the institutions will be very fond of - a growing producer, trading under C$1, with operations all in the US, leveraged to a rise in the yellow metal.”
That never happened, however, as about a month later, long before the merger was schedule to close, Rob McEwen stepped in and took control of USGL. The result has been 10-fold increase in share price for U.S. Gold longs. In retrospect, this might have been fairly obvious, as we stated “Investors should also bear in mind the potential for a Tonkin Springs lower plate Cortez Hill look alike. If Romarco can hit the structure successfully, and it carries on from the Placer property, one good hole on this untested deep area could justify the market value of the company.”
In any event, that reality left Romarco and Western Goldfields jilted, but the pair decided to strive for a happy marriage without their other partner. As we noted last August “The cornerstone of the combined entity will be WGDF’s Mesquite mine, and a feasibility study will be conducted as soon as possible to determine whether or not a full-scale mining operation is viable.” That was where the story ended until 10 days ago, when Western Goldfields brought in a new management team and terminated their merger with Romarco.
Going Forward
The main reason that WGDF chose to get into bed with Romarco was that management was having difficulty raising money. With Randall Oliphant now the Chairman of the company, that is clearly no longer an issue. Among other roles, Mr. Oliphant, was, the President and CEO of Barrick Gold [TSX:ABX; NYSE:ABX] from 1999 to 2003. He is joined by a team of equally seasoned veterans.
The Numbers
The last two articles on the situation, linked above, give a good overview and background of the fully permitted Mesquite gold mine in California, which WGDF is attempting to resurrect, so let’s focus here on the numbers. Keep in mind that these are ballpark figures, and in the next couple of months Western Goldfields management will provide new estimates across the board.
What we know is that WGDF has 110 million shares fully diluted, with warrants, etc. bringing in $40 million in cash. The adumbrated figures on Mesquite are as follows: $80 million to put it back into production, 100,000 ounces of gold production per annum at a cost per ounce approximating $200, and it will take a year to do.
This means that Western Goldfields could potentially, be a producer mid-2007, (keep in mind these are all back-of-the-envelope type calculations meant to give an idea of the potential) generating cash flow based on the aforementioned numbers of $35 million at $550 gold., or 30c/share assuming a 50:50 debt/equity split, and no further dilution from WGDF aside from the exercising of currently issued warrants.
Conclusion
If that speculation is in any way, shape or form reliable, then certainly a multiple of 10 times cash flow is not out of the question with this management team, which would equate to a share price of $3.
Either way, all of this will be hashed out, with a possible Canadian listing as well, over the next couple of months. The decision that investors need to make is, with shares presently changing hands at 60 cents, is it prudent to wait to see the numbers and probably have to pay more, or to get in now, and trust that Oliphant & Co. had a good reason for taking over Western Goldfields?
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