Event
June 12, 2008 – Investors in a shell called Kadywood Capital Corp. (KDC.H: TSX-V) were informed of a change in the name of their company to “Gold Wheaton.” Furthermore, the new Gold Wheaton announced that it had entered into its first two transactions to acquire by-product gold and precious metal streams from producing and developing mines. The Chairman and Chief Executive Officer of Gold Wheaton, David Cohen introduces Gold Wheaton as a “pure play on gold and related precious metal by-product production.” Gold Wheaton “will have immediate strong income and cash flow and it is our intent to grow this business aggressively. Upon completion of these initial two transactions and the proposed equity financing, Gold Wheaton will be well positioned for growth with current cash flow and a project pipeline,” said Cohen.
Takeaways From The Event
Gold Wheaton’s first transaction included an agreement to purchase 50% of the contained gold, platinum and palladium in ore mined and shipped from certain of the existing mining operations wholly-owned by FNX Mining Company Inc. The mining operatiosn include: “PM and 700 Deposits at the McCreedy West Mine; (ii) the Levack Footwall Deposit, Rob's Zone and 1900 Zone at the Levack Mine; and (iii) the 2000 and North Deposits at the Podolsky Mine.” This transaction will cost Gold Wheaton “Cdn$400 million payable in cash, Gold Wheaton common shares, Gold Wheaton warrants and the lesser of (a) US$400 per gold equivalent ounce (subject to an inflationary adjustment three years after the anniversary date) and (b) the then prevailing market price per ounce of gold. The Cdn$400 million will be satisfied by the payment of Cdn$175 million in cash, the issue of 350 million Gold Wheaton common shares valued at Cdn$175 million and Cdn$50 million which will be paid six months following the closing of the FNX Gold Purchase Transaction by the issuance of Gold Wheaton warrants on the same terms and conditions as the warrants to be issued pursuant to the equity financing referred to above.”
The company’s second transaction included an agreement with Redcorp Ventures Ltd. Whereby Gold Wheaton has agreed to purchase 100% of the life of mine payable gold production from Redcorp's Tulsequah Chief Mine located in British Columbia and any other mines within a defined project area. Redcorp is currently constructing its Tulsequah Chief Mine and the mine is expected to begin production in latter half of 2009, producing approximately 50,000 ounces of gold per year. This transaction will cost Gold Wheaton “US$90 million plus US$400 per ounce produced, subject to an inflationary adjustment. The upfront payment to be made to Redcorp will be payable as to US$10 million on receipt of the required material environmental and operating permits and the balance on a drawdown basis once Redcorp has expended all funds (other than US$80 million) required to complete construction and commissioning of the Tulsequah Chief Mine and upon satisfaction of certain funding conditions. Gold Wheaton will also pay an ongoing per ounce payment to Redcorp equal to the lesser of (a) US$400 per ounce (subject to an inflationary adjustment in the fourth year after production commences) and (b) the then prevailing market price per ounce of gold. Gold Wheaton will not be required to contribute to any capital or exploration expenditures in respect of Redcorp's mining operations, over and above the upfront payment.”
According the Gold Wheaton’s press release, through the two transactions with FNX Mining and Redcorp Ventures, the company expects to:
“purchase approximately 30,000 ounces of gold equivalent production in 2008, growing to approximately 162,000 ounces in 2010. These two initial transactions should result in Gold Wheaton's annual production averaging approximately 100,000 gold equivalent ounces for the next ten years.”
Lastly, the press release reported Gold Wheaton’s intentions to raise Cdn $200 million equity financing on a best efforts basis, by engaging Paradigm Capital Inc., as lead agent, together with Canaccord Capital Corp. and GMP Securities L.P. as co-bookrunners and a syndicate including BMO Capital Markets and Brant Securities Limited. The company expects to sell 400 million subscription receipts to raise the Cdn$200 million at a price of Cdn $0.50 per subscription receipt. Insiders have committed to purchase over Cdn $30 million of the offering. Each Cdn$0.50 Subscription Receipt will entitle the holder to acquire one Gold Wheaton common share and one-half of one common share purchase warrant of Gold Wheaton, without payment of additional consideration. Each whole Gold Wheaton warrant will be exercisable for one Gold Wheaton common share at a price of Cdn$1.00 for a period of five years after the closing date. The offering is expected to close on or about July 8, 2008. Pursuant to the closing of the offering, Gold Wheaton will have approximately 808 million common shares outstanding (on an undiluted basis) of which approximately 43% will be held by FNX Mining.
So why am I bringing this company to your attention?
Well, it’s mainly due to the involvement of one man – Frank Giustra. Mr. Giustra has put together a number of very successful resource companies and his network of connections, expertise and experience are second to none in the industry. The press release says “At or prior to the closing of the FNX Gold Purchase Transaction, the board of directors of Gold Wheaton will be reconstituted to include four directors, David Cohen, Frank Giustra, Terry MacGibbon and Francesco Aquilini.”
Frank Giustra is currently President and Chief Executive Officer of Fiore Financial Corporation and was former Chairman of Endeavour Financial and Yorkton Securities Inc. Mr. Giustra was also a founder of Wheaton River Minerals Ltd. and Lions Gate Entertainment Corp. He was also recently behind the creation of company Peak Gold that of late announced a 3-way merger with Metallica Resources and New Gold, creating Canada’s newest intermediate gold producer. Mr. Giustra currently holds in excess of 10% of Gold Wheaton’s (currently Kadywood Capital Corp. (KDC.H: TSX-V) outstanding shares, according to SEDI filings.
Not to leave out the other members of Gold Wheaton’s management team, David Cohen co-founder and Chairman of Eastern Platinum Ltd. and former President and Chief Executive Officer of Northern Orion Resources Inc.
Terry MacGibbon is the founder in its current form, the former President and Chief Executive Officer and currently the Executive Chairman of FNX. He is a registered professional geologist with over 35 years of international experience in the mining business and is a certified director, Institute of Corporate Directors, and a director of several Toronto Stock Exchange listed companies.
Francesco Aquilini is Managing Partner of Aquilini Investment Group, a private real estate investment firm with diverse holdings that include the Vancouver Canucks NHL franchise.
Kathleen Butt is a Chartered Accountant with over 15 years experience in the resource sector and a previous tax manager at Ernst & Young LLP (Vancouver).
My Take
I don't know if now is the correct time to purchase shares of Gold Wheaton (the stock is currently halted) but first glance tells me that this company could grow to be the gold counterpart to Silver Wheaton (SLW: TSX). I say I dont know if this is right time to purchase shares in Gold Wheaton due to the overhang of the massive financing. However, once word gets out about the prospects and caliber of management team, I'm sure a number of newsletter writers will cover the stock as they did with Mr. Giustra's previous company - Peak Gold. Once word gets out - the stock is off to the races. I do urge everyone to keep in mind that after the financing (considering the share price remains at today's closing of $0.60/share) the company will have an approximate market cap of $635 million.
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
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Note: The graphics are courtesy of a Gold Wheaton investor presentation that can be found on www.goldwheaton.com
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Last update : 13-06-2008 05:00
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