Just discovered this thread after the SI birthday party. Hope this post doesn't break any Golden List rules.
My nominee for Golden List membership goes to Winspear Diamonds, WSP.TO. It's trading at about $4.25.
BACKGROUND
It has a 68% interest in what promises to be Canada's 2nd or 3rd diamond mine (Diamet's Ekati mine in the NWT (DMMA) is already producing somewhere around 4% of the world's diamonds now, so this is no pie in the sky. Best places for info are Canada Stockwatch's bulletin board (superior to SI's- esp. posts of WillP):
forums.canada-stockwatch.com
and the company's website:
winspear.com
TAKEOVER BID BY DeBeers:
DeBeers, the diamond monopoloy/cartel, has made a takeover offer for WSP at $4.25/sh that expires on Aug. 15. Most everyone I read believes that DBRSY's bid has no chance of succeeding, as insiders and US shareholders, who are left out of the offer, apparently due to DBRSY concerns about trouble with the US Justice Dept., hold at best guess around 25-29% of the stock. Thus, DBRSY would need over 70% of the shares available to them to be tendered for them to prevail. The stock has been trading above the $4.25 takeover offer for most of the past month.
VALUE:
Analyts from Deutche Bank, Yorkton Securities, Cannacord Capital, Nesbitt Burns, and a couple others have all valued Winspear at over $5, some at $8. These valuations were all done before WSP put the pedal to the metal and started drilling holes like mad to expand their resource from about 21 million tonnes of diamnod bearing kimberlite to over 50 million probably tonnes now. Winspear also got an new engineering study done showing that they could mine twice as much as previously outlined which creates a lot more value. WSP has one of the richest diamond deposits in the world, and a NPV of $10 discounted at 6% is probably overly conservative. The concensus is that DeBeers is trying to steal WSP for $4.25.
POSSIBLE OUTCOMES:
1. DeBeers could win the takeover at $4.25 on Aug. 15th. Very unlikely.
2. DeBeers could lose and walk away, leaving the share price to do what it will do.
3. WSP could announce a deal with a White Knight such as Broken Hill Proprietary or Rio Tinto Zinc. This would probably help the share price.
4. DeBeers could make a 2nd and better offer.
The thing to remember is that an economic diamond deposit is very hard to find and this is the real McCoy. The depression in the mining industry which seems to have begun when the Bre-X fraud was unveiled has kept mining stocks undervalued. WSP is undervalued and wanted by the major player. Chances are good it will go higher in the next week. |
