Western Canadian Coal's Cambrian Acquisition a Smart Move - Paradigm Capital

Western Canadian Coal Corp. (WXJXF.PK) and Cambrian Mining PLC have a long-standing and complex set of ties at both the financial and governance levels. So determining whether Western's C$120-million acquisition of cash-strapped of Cambrian is a good idea is not easy.

But Paradigm Capital analyst Dave Davidson thinks it is a smart move for Western.

"The agreement will remove the overhang on the stock and diversify the company away from just metallurgical coal and into thermal coal, gold and antimony," he wrote in a note to clients.

He also pointed out that the combined company's production profile will increase to 3.5 million tonnes of coal per year and to potentially 11.8 million in the future.

Mr. Davidson's target price is C$2.25 a share, the highest of all the analysts that over the stock. That target is based on a multiple of 0.75 times his net asset value (NAV) estimate of C$3.10 a share.

Comments

[jaimefpozo:]

I wish this analyst is correct. I am long with this company and I have noticed that Cambrian and Western seems to have a management connection for a long time. Something that I do not feel quite confortable and I know that it sound good to diversify the buseness but why was Cambrian cash strapped? Maybe western is just giving a hand to itself since the main stock holders are the same in both companies and the Cambrian side of the buseness may not be profitable for a long time. The estimated target on the stock tell me that western may have bought a lemon. There was not any positive response from investors when the news came out and the share keeps fluctuiting as it was without Cambrian. We should not forget that nine month ago the Western share price was way over Ten dollars and until now they never had luck of buyers for their coal and at a very good price.

May 24 04:11 PM

[BrentB:]

This Cambrian/WCC is a complex relationship. At one time, Cambrian bailed out WCC - WCC had all its cash in funny paper that went south when the markets seized up. WCC almost went broke then. When coal prices hit $300 a ton, all of a sudden WCC was awash in cash. Some money went back to Cambrian then - who knows the details. Probably only their accountant.

A check of news on the link to the company has a previous report from Paradigm Capital back when WCC was at $4 - it had a target of $11 then. WCC went to 42 cents. I bought some at 42 cents.

Look at the quarterly reports - they have lots of coal and appear to have buyers. It is not clear that current contract prices provide much profit margin. However, this is a cheap way to hold energy stock. If oil hits $100 a barrel, this stock could be back at $6. Pretty good multiple from the current $1.30 or so (all dollars are Canadian).

May 25 01:10 AM

[John_UK:]

Don't overlook the fact that given WTN is acquiring CBM, one of the assets it is acquiring is a 45.3% stake in XTR .... Xtract ... which over last weekend stuck oil in Turkey, and whose share price in London is accordingly having a rather good week.

Jun 24 10:56 AM