Friday, February 15, 2013

CUU - Is the BFS Bankable?

The contract states that they have to agree in writing what economic factors are used. This agreement in writing has to be done prior to the commencement of the report. 5.5a

Did this take place? We have not been notified that this agreement was reached and so, many people believe the work has been done under 5.5b where cuu proceeds without written agreement but is then subject to the tonnage and discount clauses.

Copper Fox has met 5.5bii. So this report has been accepted at positive.

Now we split hairs. Is the report bankable? Teck has the right to deem this Not a bankable feasibility study. The contract does not split hairs over positive and bankable.

What we are waiting for is that Teck must decide what production rate it wants to proceed with. Clearly, they will not proceed with the smaller output. They are deciding whether to proceed or not to period. If Teck does not give notice then under 5.5bii the BFS is deemed positive. I do not see any other option.

So what if Teck allows the agreement to lapse without making a determination? This would mean 5.5bii is in force. It would also mean that the contract continues with all subordinate clauses intact. The next step would be Teck making an election of option for its "earn back in" or taking the royalty and walking. This could take a full 120 days.

During this time Teck has 60 days to submit a JV Option agreement. The DJVA sets out the terms embodied in the master agreement and allows for changes to the contract by agreement. The master contract sets out that the companies must make a "best efforts" effort to reach an agreement. Some people see this as jumping the gun especially where Teck has 120 days to elect what option they want for the earn back in.

This is easy to confuse. Teck will set out the same master agreement but will augment the sections regarding rights under the back in clause allowing them to expand on those. In a sense, it would tell CUU what Teck wants but it might not actually end in the election of any option.

I do not see Teck letting the election lapse. I do not see them delaying it either. The only issue I see is that we don't want to be their partner. There would be some difficulty altering the agreement as CUU needs to get the best sales tool it can have. The base line is the original agreement. Would Teck trade some details with CUU to the company's mutual benefits? Possibly. This leads me to believe they would want the 40% where they would remain the operator.

This would fund all the drilling and get them a major partner. What might Teck ask for in return for the larger stake to CUU? Liard shares would be my guess. I would also expect them to sweeten the pot to a matching value for those royalties. What I don't see happening is Teck take 20% and lets CUU run with the ball unless there is a change to the agreement. This would be possible and could be mutually beneficial. It would probably imply that a partner or two is/are already in the wings.

One thing that has not been discussed in the right light is Teck's First Right of Refusal. Suppose CUU submitted an offer to Teck to buy it out. Teck would have to respond and it does appear that they would only have the reasonable time to respond based off the time specified in the offer and not governed by and other part of the contract. In short, the contract doesn't specify when and what limitations such an exercise would have. Typically, an offer specifies a validity time frame. So assume it's 30 days. What happens if Teck refuses?

This is where the fun begins. CUU could offer the project with the full terms of the agreement up for sale. This would be a great question for the management. Why has this not been done? It would seem better to have the option to sell not subject to the FRoR. I expect management will tell us that they wanted as much time as they could get so as to advance the project further thus creating more value. Still, could this not be done to increase the options available?

Well, we just got our corporate update so it's time to study the numbers and see what's new. Perhaps something can be gleaned from the language or the numbers. Until then.

No comments:

Post a Comment