Date / Location of update
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Comments |
27th February 2006, Weekly Update
(Stock price: US$21.60)
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We wrote the following about Western Silver (AMEX: WTZ) in the 14th November Weekly Market Update:
"Given WTZ's low market
cap relative to the enormous size of the Penasquito project we think it
would make sense for a mid-tier silver or gold producer with an
over-priced stock -- Glamis Gold and Pan American Silver spring to mind
-- to make a takeover bid, although the best long-term gains for WTZ
shareholders would probably stem from the company remaining
independent."
A takeover bid for WTZ came on Friday and it came from the most logical
place: Glamis Gold (NYSE: GLG). It makes a lot of sense for GLG to use
its extremely over-priced stock to buy WTZ because, even though the
agreed price represents a hefty premium for WTZ shareholders, doing so
substantially reduces GLG's market cap per reserve ounce and will end
up substantially reducing GLG's market cap per ounce of production.
The main thing in favour of maintaining some exposure to WTZ, rather
than making a complete exit at this time, is that part of the takeover
consideration involves WTZ shareholders receiving one share of a new
exploration-stage company -- temporarily named "ExploreCo" -- in
addition to receiving GLG stock. ExploreCo will be the new vehicle for
WTZ's current management and is a company in which we would like to
have a stake given the past performance of WTZ's management. However,
from now on the stock price of WTZ will move in lock-step with the
stock price of GLG and we don't want to be exposed to fluctuations in
the stock price of GLG. We are therefore going to immediately exit WTZ
at a profit of 159% based on Friday's closing price of US$21.60 and our
September-2005 entry price of US$8.34. Hopefully, we will be able to
pick-up shares of ExploreCo at a reasonable price when they eventually
begin trading on the stock market.
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6th February 2006, Weekly Update
(Stock price: US$15.54)
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In addition to the ones mentioned above, gold/silver stocks that have
reached or exceeded our short-term targets (levels at which some profit
taking might be appropriate) are First Majestic Resource (TSXV: FR) and
Western Silver (AMEX: WTZ). Non-gold/silver stocks that have reached
levels at which it would be reasonable to make a PARTIAL exit are
Broadwing Corp. (NASDAQ: BWNG) and Taseko Mines (TSXV: TKO).
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4th January 2006, Interim Update
(Stock price: US$11.92)
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The recent upside breakout by Western Silver (AMEX: WTZ) created a
short-term technical objective of US$15 (the stock closed at US$11.92
on Wednesday). We would be inclined to take partial profits in the
US$14-$15 range.
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19th December 2005, Weekly Update
(Stock price: US$10.07)
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Western
Silver (AMEX: WTZ, TSX: WTC) has a huge silver resource and a huge gold
resource at its Penasquito project in Mexico. This makes it a potential
takeover target for a mid-tier or major mining company looking to
increase exposure to either silver or gold. Ideally, as far as we are
concerned, there won't be a takeover attempt until after the stock
price has moved much higher.
TSI subscribers interested in the WTZ story have hopefully taken
initial positions at lower levels because we suggested buying the stock
a number of times over the past three months when it was trading in the
US$8.00-$8.40 range. If not, it would still be OK to take an initial
position near the current price. This is a stock that should do
extremely well if the silver price is able to move above last week's
high. Note that a close above US$11.00 would constitute an upside
breakout and create a technical objective of around US$15.
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5th December 2005, Weekly Update
(Stock price: US$9.64)
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Western Silver (AMEX: WTZ, TSX: WTC). Buy in the low-US$9 area.
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14th November 2005, Weekly Update
(Stock price: US$8.72)
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The
results of the independent Feasibility Study (FS) on Western Silver's
(AMEX: WTZ, TSX: WTC) Penasquito silver/gold project in Mexico were
announced after the close of trading on Friday. We don't know how the
market will react on Monday, but our impression is that the results
were extremely good.
The best news is that what was already a large measured-and-indicated
(M&I) resource is now almost twice as large. Specifically, the
M&I resource for the project now stands at a huge 614M ounces of
silver plus 8.68M ounces of gold (1.14B ounces silver-equivalent or
18.8M ounces gold-equivalent). In addition there are 192M ounces of
silver and 2.8M ounces of gold in the "inferred" category and there is
the potential to make the project even bigger via more drilling.
Proven and probable reserves -- a subset of the M&I resource -- are
estimated to be 300M ounces of silver plus 4.8M ounces of gold (590M
ounces silver-equivalent or 9.7M ounces gold-equivalent).
At 16.2%, the after-tax Internal Rate of Return (IRR) estimated for the
project -- assuming metals prices of $434 for gold and $6.74 for silver
-- is not that great, but the economics are expected to improve as more
work is done. Furthermore, the estimated IRR would be a more robust 25%
at current metal prices.
Given WTZ's low market cap relative to the enormous size of the
Pensaquito project we think it would make sense for a mid-tier silver
or gold producer with an over-priced stock -- Glamis Gold and Pan
American Silver spring to mind -- to make a takeover bid, although the
best long-term gains for WTZ shareholders would probably stem from the
company remaining independent.
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7th November 2005, Weekly Update
(Stock price: US$8.05)
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With
reference to the following chart, it took Western Silver (AMEX: WTZ,
TSX: WTC) less than two weeks during May to move from US$7 to US$10 and
it has since taken 5 months for the stock to move from $10 back to $8.
This suggests to us that the June-November decline is a consolidation
and that the stock's next dynamic move will be to the upside.
WTZ is one of our favourite long-term silver speculations. It will
probably/hopefully be available at significantly lower levels at some
point over the next 6 months ("probably" because the intermediate-term
trend in the gold/silver sector has not yet turned bullish and
"hopefully" because we would like to increase our ownership at a lower
price), but we think it's important to have an initial position now.
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3rd October 2005, Weekly Update
(Stock price: US$8.44)
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In last Friday's e-mail we added Western Silver to the TSI Stocks List.
The main reasons for adding the stock at this time were discussed in
the e-mail and have now been archived at
http://www.speculative-investor.com/new/WTZ.html, but two other points
are worth mentioning. First and as evidenced by both the relatively low
number of outstanding shares and the small number of outstanding
warrants/options, the company's management clearly tries hard not to
dilute the interests of existing shareholders. Second, despite the fact
that WTZ is widely considered to be a play on silver, almost half of
the company's in-ground resource is gold. This is an advantage, we
think, because although silver has the POTENTIAL to provide greater
percentage price gains than gold over the next few years there are some
probable financial/economic scenarios under which silver would fare
quite poorly relative to gold. This, in turn, relates to gold's
tendency to trade like money and silver's tendency to trade like an
industrial metal.
From a technical perspective, the below chart shows that WTZ is
immersed in a short-term downward-sloping channel that is, in turn,
part of an intermediate-term downward-sloping channel. There's no way
of knowing -- and nor is there any need to know -- if the stock will
break upwards out of these channels in the near future or if the
corrective pattern will continue for many more months. The lowest-risk
approach for investors, in our opinion, would be to take an initial
position now with the aim of adding to the position following pullbacks
to near important support levels.
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30th September 2005, Stock Selection Update #35
(Stock Price: US$8.34)
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Western Silver (AMEX: WTZ, TSX: WTC)
was part of the TSI Stocks List during much of the first major upward
leg in the gold sector. We ended up exiting it at a substantial profit
during the first quarter of 2004 and have since been looking for a good
opportunity to re-establish a position.
We were hoping that an opportunity to buy the stock at around US$6.50
would occur late this year or early next, and it still might. However,
as a result of WTZ having 'sat out' much of the post-May advance in
gold/silver stocks -- it is presently near the bottom of a lengthy
consolidation pattern and near a 52-week low -- it now looks
significantly under-valued compared to other stocks when the
world-class nature of its major asset (the Penasquito silver/gold
project in Mexico) is taken into account.
The latest resource estimate shows that Penasquito contains 314M ounces
of silver and 4.6M ounces of gold in the measured-and-indicated
(M&I) category (603M ounces silver-equivalent or 9.6M ounces
gold-equivalent at current metal prices). With a fully diluted share
count of 51M, no debt and about US$50M cash, this means that WTZ is
presently being valued by the stock market at around US$38 per M&I
gold-equivalent ounce. This is not particularly low in itself, but it
is low when the quality of the deposit and the huge potential for
future resource expansion are considered.
Penasquito is of sufficient size and quality to be of interest to a
major mining company, meaning that WTZ could become a takeover target
at some point. Companies such as Goldcorp, Glamis Gold and Pan American
Silver, for example, presently have such richly-valued shares that they
could afford to buy WTZ at double WTZ's current price (in an all-stock
deal) and still bring about a sizeable increase in their per-share net
asset values.
The question is: why has WTZ not participated in the recent run-up in the gold sector?
The market might be concerned that the dramatic increases in fuel and
construction costs that have occurred over the past year will mean that
the feasibility study for the Penasquito project -- the results of
which are due to be announced within the next several weeks -- will
reveal a low internal rate off return (IRR). If this is the case our
view would not change because we expect gold and silver to out-perform
other commodities by a wide margin over the coming 2 years; in other
words, if our longer-term view is correct then the project's IRR will
improve substantially over the next 2 years. A disappointing outcome
from the feasibility study would, however, likely cause the stock to
drop sharply in the short-term, which is a reason why investors should
consider taking an INITIAL position now with the aim of building up to
a full position in the future as opportunities present themselves.
Another possible explanation for WTZ's relative price weakness is that
large investors have been positioning themselves to participate in the
equity financing that would likely follow the release of a POSITIVE
feasibility study. That is, investors who expect to participate in the
equity portion of the large financing that will have to be done to fund
Penasquito's development might be reducing their existing positions.
In any case, within the context of a long-term bull market there's
generally a lot less risk involved in buying following a pullback to
near important support than there is in buying following a surge to
near important resistance.
We are going to add WTZ to the TSI Stocks List at yesterday's closing price of US$8.34.
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