Candente (DNT.to) and Canaco (CAN.v): This deal makes a lot of sense

Candente Gold is the new vehicle being spun out of Candente (DNT.to) and to be owned (to begin with at least) 50/50 by DNT.to and Canaco (CAN.v). Once DNT.to offers up shares in the new company to its existing shareholders it will keep 10% to 15% for the longer term. Below are all the details so I won't start rattling off the list of terms, but my quick comment on the concept behind the new company is "I like it".

For years now, DNT.to has been valued by Mr. Market almost totally on its Cañariaco copper project in Peru. This isn't a big surprise, because CEO Freeze and her team have made it by far the most advanced project on the company books. However, DNT.to has a lot (I mean a lot, check out the website) of greenfield gold, gold/silver, gold/copper etc prospects on its books that have been sitting there doing nothing.

This deal brings them out of the shadow of Cañariaco and will give thema decent asset value. It will also mean that the projects might even move forward slower than the snail's pace of thje last couple of years. The most advanced project is their majority owned El Oro project in Mexico, but most (if not all, I'd have to check) of the others are in Peru, including some promising plots of land (a couple of real potentials in there, too). So all in all good job and explains the recent share price run-up (see three month chart above).

I'm not making any reco's here right now. The dynamic is new and it needs study to see if either the old DNT.to, the new DNT.to, CAN.v or the new Candente Gold company are worthy buys with a longer term perspective (though I strongly suspect DNT.to shares will benefit today,as everybody likes a spinout offering). Here's the PR:

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VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 14, 2009) - Candente Resource Corp. (TSX:DNT - News; BVL:DNT)(WKN:GW4) ("Candente") and Canaco Resources Inc. (TSX VENTURE:CAN - News; "Canaco") are very pleased to report that they have agreed to create a new company, Candente Gold Corp. ("Candente Gold"), to focus on exploration and development of precious metals projects in Latin America. Each company will transfer to Candente Gold its respective 50% interest in the El Oro gold-silver property in Mexico and in addition, Candente will also transfer to Candente Gold its Peruvian gold-silver properties.

Candente Gold's first focus will be the El Oro property, which has very significant past gold and silver production (20 million ounces gold equivalent), a substantial historic (non NI 43-101 compliant) gold and silver resource and excellent exploration potential. (for details see http://www.candente.com/i/pdf/El_Oro_Mexico_Summary.pdf).

Candente Gold's second focus will be the earlier stage Peruvian properties where exploration by Candente has identified gold and silver mineralization and drill targets in geological settings similar to some of Peru's world class mines. (See Candente Gold Properties Powerpoint presentation http://www.candente.com/i/pdf/GoldPropertiesApril2009.pdf).

Candente Gold will issue to each of Candente and Canaco, 5 million common shares and a promissory note for future reimbursement of their respective expenditures to date relating to the El Oro property (Cdn$1.3 million each) to be received in cash or shares. El Oro is under option from Luismin (now controlled by Goldcorp) by Minera CCM S.A. de C.V., which is owned equally (50% each) by Candente and Canaco and is being sold to Candente Gold.

For the Peruvian gold-silver properties, Candente will receive 10 million shares in Candente Gold upon transfer and an additional 10 million shares once a minimum of US$5 million has been spent cumulatively by Candente Gold on these properties.

Candente Gold will seek to list its common shares yada yada continues here

Candente (DNT.to) offers the world of copper a dose of reality

A very interesting press release from Candente Resources (DNT.to) today, the junior exploration-stage copper play run by Joey Freeze (i.e. class mgmt act) and owners of the Cañariaco greenfield in Peru.

The PR (linked right here) reports on the 3rd party economic assessment recently done for the project. There's the usual amount of blah blah (if you're a wonk like me, you should read the full PEA report by Samuel Eng. available on this link) but it all boils down to this chart....

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Cu           Discounted NPV's (Post-Tax)
Price$/lb           (x1,000,000)            Pre-tax IRR    Post-tax IRR
-----------------------------------------------------------------------
              0%        8%        10%              %               %
-----------------------------------------------------------------------
1.75         $ 771     ($158)     ($250)            7.4             5.6
2.00         $1397      $127        ($8)           12.4             9.9
2.25         $2024      $388       $210            16.9            13.5
2.50         $2651      $645       $424            21.2            16.7
-----------------------------------------------------------------------

......and the capex price tag of U$1.17Bn. So zoom in on the 8% discounted NPV line (the traditional benchmark for projects such as this). We see that until we get to U$2.25/lb copper the IRR (internal rate of return, just a fancy way of saying "the money we'll make") isn't so great. Or put it another way; if you wanted to invest one point one seven billion dollars, you'd be looking for a decent profit, no?

The bottom line is that DNT.to, a pretty good set up as junior coppers go, has just presented a cold fact to the market; there will be no copper projects coming online until the metal gets back above $2 minimum. Not Cañariaco, not anywhere. That's because the DNT.to project is a very good benchmark in world-style numbers (relatively cheap, relatively big, relatively well-run, relatively well-designed etc). We have a very good reference point going forward. Until copper moves back above $2, the market will not get any new supply.

I like this news a lot.

As for Candente, the robust economics of just a few months ago have faded away. No market genius needed to work that out; all you need is a price chart handy.

There's hope for this stock here at 20c; if copper moves above $2 it's a double and if it goes above $3 then expect DNT.to to be a five-bagger or simply bought out by a major. Today's press release a nice, clear map for both DNT.to and the sector in which it works. Use it to your advantage.