I think there is some misunderstanding re the treatment of the Liard shares under the new agreement. Teck will now keep the Liard shares and Copper Fox will have 25% interest in the flow from such shares. I would like to state my understanding re the pre and post deal so that it can be scrutinized and tested.

If you listen to Elmer in his last December telephone call (his rescue call after the BFS announcement), he is quite enthusiastic about the value of the Liard shares. Laird holds a 30% carried net proceeds interest and Elmer indicated that the net proceeds would be about $500 million per year. Upon delivery of the BFS, Teck was supposed relinquishes 78% ownership of Laird to Copper Fox. Since Copper Fox has already purchased about 2% of Laird, that would bring Copper Fox’s interest in Laird to about 80%. 30% of $500 million per year is $150 million. 78% and 2% of that is respectively $117 million and $3 million per year. No wonder why Elmer sounded upbeat in December. He repeated a $120 million figure (117+3) in his latest telephone conversation.

Back in December, however, Elmer cautioned that if Teck earned back 75%, only 25% of the 117 million per year would go to Copper Fox. Thus on a 75% earn back, Teck would get .75*$117 = $87.75 million per year and Copper Fox would get .25*$117 = $29.25 + 3 = $32.25 million per year. No wonder why Teck was not going to pass up on the possibility of 75%.

Although the shares do not change hands in the new JV, the cash flow effect is exactly the same. Copper Fox keeps the cash flow from 2% of Liard shares it already owns ($3 million) and 25% of the cash flow from the 78% of Liard that Teck owns (29.25 million). Total=$32.25 million per year. Thus in regard to the Liard shares, the new JV seems to be in harmony with the spirit of the old agreement. What is not in harmony with the old agreement is Teck’s commitment to take the project to production if it chose the 75% option.

Assuming that Elmer’s figure of $500 million per year is approximately correct, what is the NPV of $32.25 million per year to Copper Fox? Using an 8% cost of capital, a mine life of 25 years and a production start six years from now, $32.25 million per year yields a NPV of $233 million.That’s $0.58 per share based solely on the Laird cash flow. Our current share price is barely above that level

Given that Copper Fox benefits 25% from the $380 million per year that is not subject to 30% net proceeds interest, I would say that Copper Fox is undervalued. Of course, that conclusion is based on Elmer’s estimation that Shaft Creek will become a producing mine with net proceeds of $500 million per year.