Why western copper and gold stocks rose 20% early today
Actions of Western copper and gold (NYSEMKT: WRN) rose rapidly by 20% at the opening on May 17. The miner’s shares still held a large chunk of that gain around 10:30 a.m. EDT, up nearly 15%. You can thank the mining industry giant Rio Tinto (NYSE: RIO) for gain.
Western Copper and Gold announced today that diversified miner Rio Tinto has made a C $ 26.9 million investment in the company. This money will be used to purchase approximately 11.8 million shares of Western Copper and Gold at a price of C $ 2.17 per share. Toronto-listed stocks are currently trading well above this figure, suggesting that investors see it as a worthwhile long-term advantage. In total, Rio Tinto will eventually own approximately 8% of Western Copper and Gold.
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In addition, Rio Tinto will obtain the right to invest in future sales of shares in order to retain its stake. Rio Tinto will also have a seat at the table (contributing to a key project committee and ability to oversee board meetings) with the potential to have even more participation (a seat on the board) if its investment in Western Copper and Gold reached 12.5%. .
The cash injection will help finance the development of Western Copper and Gold’s key asset, the Casino project. The project is still in its infancy, but the stated objective here is for Rio Tinto to “better understand the potential of the Casino project”.
Western Copper and Gold is a small company with big development projects. Rio Tinto’s investment is a big vote of support, but mines are complex, expensive, and can take a long time to build. Indeed, there are still very real risks to consider here, in particular that the development plans are not going as well as hoped; environmental, political and legal headwinds cause delays (or worse); lower raw material prices (reduction of the expected value of the project); or that the financing costs are proving more and more difficult to cover. Most long-term investors should probably take a wait-and-see approach, although some shrewd guys might think, perhaps not without reason, that Rio Tinto could end up buying Western Copper and Gold if the mine it is building turns into a big winner.
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Reuben Gregg Brewer has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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