Western Copper and Gold Corporation: Exhibit 99.2 - Filed by newsfilecorp.com
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2012
The following management discussion and analysis of Western
Copper and Gold Corporation (“Western” or the “Company”) is dated November 8,
2012, and provides an analysis of the Company’s results of operations for the
three and nine months ended September 30, 2012.
This discussion is intended to provide investors with a
reasonable basis for assessing the financial performance of the Company as well
as certain forward looking statements relating to its potential future
performance. The information should be read in conjunction with the Western
unaudited condensed interim consolidated financial statements for the three and
nine months ended September 30, 2012 and the notes thereto and with the Western
audited consolidated financial statements for the year ended December 31, 2011
and the notes thereto. The Company’s accounting policies are described in note 3
of the audited consolidated financial statements for the year ended December 31,
2011. All of the financial information presented herein is expressed in Canadian
dollars, unless otherwise indicated.
Western is listed on the Toronto Stock Exchange (“TSX”) and the
NYSE MKT under the symbol ‘WRN’. As at the date of this report, the Company had
93,782,503 common shares outstanding.
Additional information on the Company can be found in the
Company’s Annual Information Form (“AIF”), filed with Canadian regulators on
SEDAR at www.sedar.com and with the United States Securities and Exchange
Commission (the “SEC”) at www.sec.gov on Form 40-F.
The operations of the Company are speculative due to the
high-risk nature of the mining industry. Western faces risks that are generally
applicable to its industry and others that are specific to its operations.
Certain key risks affecting the Company’s current and future operations are
discussed in its AIF and Form 40-F. This list is not exhaustive. Additional
risks not currently known to the Company, or that the Company currently deems
immaterial, may also impair the Company’s operations. Such risk factors could
materially affect the value of the Company’s assets, and future operating
results of the Company and could cause actual results to differ materially from
those described in the forward looking statements contained in this management
discussion and analysis. Reference is made to the discussion of forward-looking
statements at the end of this document.
DESCRIPTION OF BUSINESS
Western Copper and Gold Corporation is a Canadian-based
publicly-traded mineral exploration company with a primary focus of advancing
its Casino deposit towards production. The Casino deposit contains significant
gold, copper, and molybdenum in greater than one billion tonnes of reserves and
an additional upside of 1.7 billion tonnes of inferred resource. Located in the
Yukon, the Casino deposit is one of the largest undeveloped copper-gold deposits
in Canada.
CORPORATE ACTIVITIES
On October 5, 2012, the Company closed a non-brokered private
placement of 500,000 flow-through common shares at a price of $0.80 per share
for gross proceeds of $400,000. Certain insiders were involved in the private
placement. The gross proceeds of the financing will be used to incur qualifying
Canadian Exploration Expenses.
On July 13, 2012, the Company announced that Mr. Ian Watson had
tendered his resignation to the Board of Directors so that he may focus on other
endeavours.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
PROPERTY OVERVIEW
Casino (Yukon, Canada)
PROJECT HIGHLIGHTS
In April 2011, Western announced the results of the updated
pre-feasibility study on its Casino deposit. The study recommends that the
project be built as an open pit mine and a mill processing 120,000 tonnes of ore
per day for 23 years. Based on the positive results of the Casino
pre-feasibility study, Western initiated work towards a full feasibility study.
The economic strength of the Casino Project demonstrated in the
pre-feasibility study is highlighted by its exceptionally quick pay-back period
and attractive net present value. In the table below, Western presents economic
estimates under two price scenarios. Further variance analysis is contained in
the pre-feasibility study, available under the Company’s profile on SEDAR at
www.sedar.com.
| Economic Returns at the following prices |
Current1 |
Long-Term1 |
| Net Present Value (After-tax @ 8%) |
$1,924 million |
$963 million |
| Internal Rate of Return |
23% |
16% |
| Pay Back Period |
2.4 years |
3.3 years |
| 1. |
Price Assumptions: |
|
| |
Current: |
Cu US$3.40/lb; Au US$1,600/oz; Mo US$13.30/lb;
Ag US$28.00/oz; FX $1:US$1.00 |
| |
Long-Term: |
Cu US$2.50/lb; Au US$1,100/oz; Mo US$14.00/lb;
Ag US$17.00/oz; FX $1:US$0.90 |
The project’s short pay-back period is achieved because some of
the deposit’s key characteristics lead to accelerated returns over the first
four years of mill operation. Accelerated returns are expected over the first
four years because of the following:
- Higher grades early in the mine life;
- Higher gold production from the concurrent operation of the heap leach and
the mill; and
- A very low strip ratio in the initial years.
| Average Annual Mill Feed Grade |
Years 1-4 |
Life of Mine |
| Copper Equivalent
(%)1 |
0.71% |
0.50% |
| |
|
|
| Copper (%) |
0.310% |
0.202% |
| Gold (g/t) |
0.377 |
0.238 |
| Silver (g/t) |
2.113 |
1.727 |
| Molybdenum (%) |
0.025% |
0.023% |
| |
|
|
| Average Annual Metal Production2 |
|
|
| Copper (M lb/yr) |
234 |
157 |
| Gold (k oz/yr) |
435 |
262 |
| Silver (k oz/yr) |
1,558 |
1,369 |
| Molybdenum (M lb/yr) |
13 |
12 |
| |
|
|
| Strip Ratio (waste:ore) |
0.5:1 |
0.7:1 |
| |
1. |
Metal prices used to calculate Copper Equivalent grade:
Cu US$2.00/lb; Au US$875/oz; Mo US$11.25/lb |
| |
2. |
No discount for metallurgical recovery is contained in
metal production figures. |
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
FEASIBILITY STUDY UPDATE
M3 Engineering and Technology Corporation, Tucson, Arizona,
continue to advance the feasibility study and are on schedule to complete the
study by the end of the year. At this point in the development of the
feasibility study, several aspects of the design outlined in the pre-feasibility
study have been confirmed. Significant items are discussed below.
METALLURGICAL WORK
Metallurgical test work to investigate the milling
characteristics of the ore was carried out at G&T Metallurgical Services
Ltd., Kamloops, BC and Dawson Metallurgical Laboratories, Salt Lake City, Utah,
under the direction of Starkey and Associates and FLSmidth, Inc. This test work
confirmed the pre-feasibility study design basis of a single grinding line to
process ore at a nominal capacity of 120,000 tonnes per day.
During the second quarter, the Company carried out a small
drilling campaign to support an updated flotation test program. The goal of the
drilling program was to obtain new drill core for the flotation test work. The
flotation testing is underway and is expected to be complete in the fourth
quarter.
POWER SUPPLY
The preliminary front-end engineering and design (“Pre-FEED”)
study report on evaluation of best available vendor technology for a small-mid
scale liquefied natural gas (“LNG”) facility to be located in the vicinity of
Fort Nelson, BC is expected shortly. The LNG from this facility will be gasified
onsite to feed the onsite 150 MW power plant which will provide the electrical
energy to operate the concentrator, mine, and ancillary facilities. Preliminary
study results indicate that the available LNG technology will provide a cost
effective and reliable fuel supply for the project. A transportation study is
also underway to optimize the LNG haulage from Fort Nelson to the Casino mine
site.
PERMITTING
Baseline data acquisition and other permitting activities
continue in 2012. Community meetings were held in Whitehorse and the Village of
Carmacks in May, and Western met with the Selkirk Chief and Council in October.
Western has prioritized engagement with communities, First Nations and other
governments in preparation for formal submission of its application to the Yukon
Environmental and Socio-economic Act Board - the first step of the Yukon
permitting process.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
SELECTED QUARTERLY FINANCIAL INFORMATION
The following quarterly information has been extracted from the
Company’s unaudited condensed interim consolidated financial statements.
| As at and for the quarter ended |
|
30-Sep-12 |
|
|
30-Jun-12 |
|
|
31-Mar-12 |
|
|
31-Dec-11 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss and comprehensive loss |
|
738,445 |
|
|
1,019,102 |
|
|
1,201,730 |
|
|
19,096,053 |
|
| Loss per share – basic and diluted |
|
0.01 |
|
|
0.01 |
|
|
0.01 |
|
|
0.21 |
|
| Exploration and evaluation assets |
|
47,528,131 |
|
|
45,938,009 |
|
|
43,734,281 |
|
|
42,114,531 |
|
| Cash, cash equivalents, and short-term
investments |
|
3,441,580 |
|
|
5,184,195 |
|
|
7,574,938 |
|
|
9,465,568 |
|
| Total assets |
|
51,371,026 |
|
|
51,469,800 |
|
|
51,761,289 |
|
|
52,114,445 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| As at and for the quarter ended |
|
30-Sep-11 |
|
|
30-Jun-11 |
|
|
31-Mar-11 |
|
|
31-Dec-10 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss and comprehensive loss |
|
1,473,417 |
|
|
748,943 |
|
|
687,400 |
|
|
665,986 |
|
| Loss per share – basic and diluted |
|
0.02 |
|
|
0.01 |
|
|
0.01 |
|
|
0.01 |
|
| Exploration and evaluation assets |
|
81,619,696 |
|
|
76,515,156 |
|
|
74,414,221 |
|
|
73,402,621 |
|
| Cash, cash equivalents, and short-term
investments |
|
16,821,163 |
|
|
21,915,277 |
|
|
22,080,673 |
|
|
23,636,895 |
|
| Total assets |
|
99,185,859 |
|
|
99,092,973 |
|
|
96,875,640 |
|
|
97,449,751 |
|
Items that resulted in significant differences in the
quarterly figures presented above are explained in the following narrative.
Loss and comprehensive loss
Western reported a loss of $19.1 million for the three months
ended December 31, 2011. The quarterly loss includes a loss on distribution of
$19.7 million as a result of the distribution of assets pursuant to the plan of
arrangement completed on October 17, 2011 (the “Arrangement”). For more
information on the Arrangement, refer to note 3 of the unaudited condensed
interim consolidated financial statements. The impact of the loss on
distribution was somewhat offset by an income tax recovery of $1.95 million.
Plan of arrangement costs related to the Arrangement also contributed $161,000
to the quarterly loss figure.
Other than the loss on distribution discussed above, the
Company also experienced higher than usual quarterly loss figures from September
30, 2011 to June 30, 2012 as a result of the high value assigned to stock
options granted in July 2011 and the method used to amortize that value.
The determination of stock option value using the Black-Scholes
option pricing model is correlated to the exercise price and the volatility of
the underlying stock price. All other things being equal, the higher the
exercise price, the higher the value assigned to the stock option. Each stock
option granted in July 2011 has an exercise price of $3.11. The value assigned
to each stock option is $2.13. In comparison, the stock options granted in July
2012 have an exercise price of $0.80 per share and have been assigned a value of
$0.34 per stock option using the Black-Scholes option pricing model.
The value assigned to stock options is amortized over their
vesting period on a graded basis, as required under International Financial
Reporting Standards. This method heavily weights the amortization over the first
12 months; explaining much of the increase in office and administration expenses
from July 2011 to June 2012.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
In addition to the items discussed above, the loss incurred
during the three months ended September 30, 2011 is elevated because it includes
$520,000 in costs relating to the Arrangement.
Exploration and evaluation assets
Expenditures incurred by the Company relating to its mineral
properties are capitalized. As a result, the carrying value of exploration and
evaluation assets should generally increase from period to period. As most field
work relating to the Casino Project is performed from April to October due to
weather considerations, the carrying value of exploration and evaluation assets
typically sees larger increases during the second and third quarters of each
year.
During the quarter ended December 31, 2011, Western distributed
the Carmacks Copper Project, the Redstone Property, and the Island Copper
Property to its shareholders pursuant to the Arrangement. As part of the
accounting for the distribution, Western eliminated the carrying value of the
assets no longer held by the Company. This amounted to a decrease in exploration
and evaluation assets of $41 million. Western is now focusing its efforts on
advancing the Casino Project to production.
Cash, cash equivalents, and short-term investments
For the most part, cash is used to fund ongoing operations that
increase the carrying value of the Company’s exploration and evaluation assets.
Unless there is a significant financing transaction, cash, cash equivalents and
short-term investments generally decrease period over period.
Cash decreased more than usual from September 30, 2011 to
December 31, 2011 because the Company transferred $2 million to Copper North
Mining Corp. (“Copper North”) and $2.5 million to NorthIsle Copper and Gold Inc.
(“NorthIsle”) pursuant to the Arrangement.
Total assets
Because the Company capitalizes the amounts that it spends to
advance its mineral properties, most expenditures are capitalized as exploration
and evaluation assets and there is no significant impact. Significant
fluctuations occur when there are financings, distributions, or disposals.
Total assets decreased significantly during the three months
ended December 31, 2011 as a result of the Arrangement. Pursuant to the
Arrangement, Western distributed certain exploration and evaluation assets and
cash to Copper North and NorthIsle. Consequently, exploration and evaluation
assets decreased by $41 million and cash decreased by $4.5 million.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
RESULTS OF OPERATIONS
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| CORPORATE EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounting and legal |
|
60,199 |
|
|
25,610 |
|
|
214,545 |
|
|
266,079 |
|
| Filing and regulatory fees |
|
34,775 |
|
|
28,419 |
|
|
183,989 |
|
|
227,069 |
|
| Office and administration |
|
661,223 |
|
|
790,146 |
|
|
2,280,254 |
|
|
1,656,548 |
|
| Shareholder communication |
|
141,831 |
|
|
177,028 |
|
|
440,039 |
|
|
445,815 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LOSS BEFORE OTHER ITEMS |
|
898,028 |
|
|
1,021,203 |
|
|
3,118,827 |
|
|
2,595,511 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| OTHER ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange |
|
(22 |
) |
|
(3,078 |
) |
|
4,870 |
|
|
2,383 |
|
| Interest income |
|
(13,772 |
) |
|
(64,344 |
) |
|
(64,429 |
) |
|
(207,770 |
) |
| Plan of arrangement costs |
|
- |
|
|
519,636 |
|
|
45,798 |
|
|
519,636 |
|
| Exploration tax credit |
|
(145,789 |
) |
|
- |
|
|
(145,789 |
) |
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LOSS AND COMPREHENSIVE LOSS |
|
738,445 |
|
|
1,473,417 |
|
|
2,959,277 |
|
|
2,909,760 |
|
3 MONTHS ENDED - SEPTEMBER 30, 2012
Western incurred a loss of $738,000 ($0.01 per common share)
for the three months ended September 30, 2012 compared to a loss of $1.5 million
($0.02 per common share) over the same period in 2011. The scale and nature of
the Company’s administrative activity have remained generally consistent
throughout these periods, but a number of items have led to a significant
difference in the loss figures.
The Company incurred legal, tax, and regulatory compliance
services associated with executing the Arrangement during the three months ended
September 30, 2011 in the amount of $520,000. There were no such expenses during
the same period in 2012.
During the three months ended September 30, 2012, Western
received a tax credit of $146,000 for 2011 exploration expenditures on the
previously owned Island Copper Property. This type of tax credit would normally
be credited to the related exploration and evaluation asset, but since the
Company disposed of the Island Copper Property as part of the Arrangement, it
credited the amount received to the statement of loss. The decrease in office
and administration expenses as compared to the same period in 2011 is largely
due to the valuation of stock options and the method used to amortize the
assigned value. Share-based payments allocated to office and administration
expenses during the quarter ended September 30, 2012 decreased by $75,000 as
compared to the same period in 2011. Share-based payments represent 59% of total
office and administrative expenses reported during the three months ended
September 30, 2012 and 2011. Excluding share-based payments, office and
administration expenses for the three months ended September 30, 2012 total
$270,000. This compares with $323,000 incurred during the third quarter in 2011.
The decrease in costs is due to a general decrease in wages, benefits, and rent
as a result of sharing services through the management company set-up at the
time of the Arrangement.
Interest income decreased during the three months ended
September 30, 2012 as compared to the same period in 2011 because the Company
had lower interest bearing balances in 2012.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
YEAR-TO-DATE - SEPTEMBER 30, 2012
For the nine months ended September 30, 2012, Western incurred
a loss of $3.0 million ($0.03 per common share). This compares with a loss of
$2.9 million ($0.03 per common share) for the nine months ended September 30,
2011. Overall, the scale and nature of the Company’s administrative activity
have remained generally consistent throughout 2011 and 2012, but despite similar
loss figures, a number of items have experienced significant swings from one
year to the next.
Year-to-date accounting and legal fees have decreased as
compared to 2011 because in 2011 Western incurred professional fees on certain
non-recurring items including legal fees relating to the Company’s listing on
the NYSE MKT and accounting fees relating to the transition to International
Financial Reporting Standards. Legal fees were also generally higher in 2011.
Filing and regulatory fees for the nine months ended September
30, 2011 are $43,000 higher than over the same period in 2012 because the
Company had to pay the NYSE MKT initial listing fee when it listed on the
exchange in February 2011. This charge is not recurring.
The Company’s office and administration expenses increased by
$623,000 during the nine months ended September 30, 2012 as compared to the same
period in 2011. The most significant reason for the increase is the valuation of
stock option granted to employees and directors. Share-based payments allocated
to office and administration increased by $870,000 during the nine months ended
September 30, 2012 as a result of the large value attributed to the July 2011
stock option grant. The increase in share-based payments was somewhat offset by
decreases in wages, benefits, and rent.
For the nine months ended September 30, 2012, office and
administration expenses, excluding share-based payments, total $789,000. This
compares to $1,040,000 during the same period in 2011. Cost sharing through the
management company is the main driver behind these savings.
Interest income decreased during the nine months ended
September 30, 2012 as compared to the 2011 year-to-date figures because the
Company had lower interest bearing balances throughout 2012.
Plan of arrangement costs recorded in 2011 and the tax credit
recorded in 2012 also had a significant on year-to-date loss results. Refer to
the discussion on the results of operations for the three months ended September
30, 2012, above, for a description of these items.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
LIQUIDITY AND CAPITAL RESOURCES
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| CASH PROVIDED BY (USED IN) |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating activities |
|
(339,932 |
) |
|
(1,050,421 |
) |
|
(1,301,118 |
) |
|
(2,498,678 |
) |
| Financing activities |
|
- |
|
|
19,626 |
|
|
301,500 |
|
|
2,410,369 |
|
| Investing activities |
|
653,131 |
|
|
14,827 |
|
|
501,071 |
|
|
253,432 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| CHANGE IN CASH AND EQUIVALENTS |
|
313,199 |
|
|
1,015,968 |
|
|
(498,547 |
) |
|
165,123 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents – beginning |
|
551,390 |
|
|
2,811,789 |
|
|
1,363,136 |
|
|
1,630,698 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| CASH AND CASH EQUIVALENTS |
|
864,589 |
|
|
1,795,821 |
|
|
864,589 |
|
|
1,795,821 |
|
In addition to its cash and cash equivalents, the Company had
$2.6 million in short-term investments as at September 30, 2012, bringing total
cash and short-term investments to $3.4 million. As at December 31, 2011, cash
and short-term investments totaled $9.5 million. The decrease in cash and cash
equivalents and short-term investments is mostly due to the Company’s continued
permitting and engineering work at the Casino Project as well as general
administrative expenses.
Cash and cash equivalents comprise cash deposits held at banks.
Short-term investments consist of Guaranteed Investment Certificates (“GIC”)
from Canadian chartered banks that are cashable at the Company’s discretion
without penalty.
As at September 30, 2012, Western had $2.6 million in working
capital, which is sufficient working capital to fund the Company’s anticipated
corporate expenses in 2012 and completion of the feasibility study. Further work
may require additional financing. In addition, the Company will have to raise
significant additional capital in order to build the Casino Project.
Western is an exploration stage enterprise. As at the date of
this report, the Company has not earned any production revenue. It depends
heavily on its working capital balance and its ability to raise funds through
capital markets to finance its operations.
The financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company’s ability to continue
as a going concern is substantially dependent on its ability to raise funds
necessary to acquire assets, perform exploration and development activities, and
conduct its corporate affairs primarily through the issuance of its common
shares. There is a risk that in the future the Company may not be able to raise
the capital required to fund operations.
Operating activities
The significant components of operating activities are
discussed in the Results of Operations section above.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
Financing activities
During the three months ended September 30, 2012, the Company
had no financing activities. During the same period in the previous year,
Western received $19,000 from the exercise of stock options.
For the nine months ended September 30, 2012, Western received
$302,000 from the exercise of stock options compared to $2.7 million received
from the same source during the nine months ended September 30, 2011.
Investing activities
Investing activities include both mineral property expenditures
and purchases and redemptions of short-term investments. These numbers often
off-set to a great degree; as a result, net investing activity figures are lower
than one might expect if this figure contained only amounts invested in the
Company’s exploration and evaluation assets.
The Company expended $1.4 million on mineral property
expenditures during the third quarter of 2012. This compares with $4.1 million
during the same period in 2011. Western has spent $5 million on exploration and
evaluation costs so far in 2012. The Company had incurred $6.8 million during
the first nine months of 2011.
The majority of the costs in both years relate to engineering
studies (e.g. pre-feasibility, feasibility) and permitting work on the Casino
Project. A summary of activities relating to the Casino Project is available
under the Property Overview section at the beginning of this report.
During the three months ended September 30, 2012, the Company
redeemed $2 million from short-term investments to pay for operating expenses
and exploration and evaluation expenditures. This compares to $4.1 million
during the three months ended September 30, 2011. Year-to-date in 2012, Western
has redeemed $5.6 million in short-term investments, as compared to $7.1 million
in 2011.
CONTRACTUAL OBLIGATIONS
The Company leases office space in Vancouver, British Columbia.
The future minimum lease payments by calendar year are approximately as follows:
| Year |
|
$ |
|
| |
|
|
|
| 2012 |
|
77,000 |
|
| 2013 |
|
312,000 |
|
| 2014 |
|
323,000 |
|
| 2015 |
|
333,000 |
|
| 2016 |
|
140,000 |
|
| Thereafter |
|
- |
|
| |
|
|
|
| TOTAL |
|
1,185,000 |
|
Should Western make a production decision on its Casino
Project, it is required to make a payment of $1 million to a third party.
Production on the claims is also subject to a 5% net profits interest.
Western has no debt and does not pay dividends.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
The Company has no off-balance sheet arrangements, no capital
lease agreements and no long term obligations other than those described above
or in the description of exploration and evaluation assets contained in the
notes to the consolidated financial statements.
Neither the Company nor any of its subsidiaries has any
externally imposed capital requirements.
RELATED PARTY TRANSACTIONS
The Company had related party transactions with Ravenwolf
Resource Group Ltd. (“Ravenwolf”), a private company owned equally by Western,
NorthIsle, and Copper North. Ravenwolf provides administration, accounting and
other services to its owners on a cost-recovery basis. The related party
transactions incurred during the periods presented were in the normal course of
operations.
Amounts charged by Ravenwolf were categorized as follows:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Filing and regulatory |
|
- |
|
|
- |
|
|
1,502 |
|
|
- |
|
| Office and administration |
|
238,943 |
|
|
- |
|
|
709,570 |
|
|
- |
|
| Shareholder communication |
|
31,275 |
|
|
- |
|
|
91,502 |
|
|
- |
|
| CORPORATE EXPENSES |
|
270,218 |
|
|
- |
|
|
802,574 |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other assets |
|
1,316 |
|
|
- |
|
|
1,316 |
|
|
- |
|
| Exploration and evaluation assets |
|
64,410 |
|
|
- |
|
|
201,486 |
|
|
- |
|
| ASSETS |
|
65,726 |
|
|
|
|
|
202,802 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
335,944 |
|
|
- |
|
|
1,005,376 |
|
|
- |
|
Other assets of the Company include amounts receivable of
$144,000 from Ravenwolf for advances made by Western to fund Ravenwolf’s working
capital. This amount is non-interest bearing, unsecured and payable on demand.
The Company’s related parties also include its directors and
officers. The remuneration of directors and officers was as follows:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and director fees |
|
188,725 |
|
|
213,100 |
|
|
595,900 |
|
|
632,401 |
|
| Share-based
payments |
|
326,499 |
|
|
478,710 |
|
|
1,266,794 |
|
|
666,974 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
515,224 |
|
|
691,810 |
|
|
1,862,694 |
|
|
1,299,375 |
|
Share-based payments represent the fair value of stock options
previously granted to directors and officers that was recognized during the
periods presented above.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
SIGNIFICANT ACCOUNTING ESTIMATES
Use of estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates, and assumptions that affect
the application of policies and reported amounts of assets and liabilities and
disclosures of contingent assets and contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.
Actual results could differ from those estimates. Significant
accounts that require estimates as the basis for determining the stated amounts
include exploration and evaluation assets, share-based payments, the fair value
of assets distributed pursuant to the plan of arrangement, the allocation of
financing proceeds, and income and mining taxes. Differences may be material.
Exploration and evaluation asset
The carrying amount of the Company’s exploration and evaluation
asset represents costs net of write-downs to date and does not necessarily
reflect present or future values. Recovery of capitalized costs is dependent on
successful development of economic mining operations or the disposition of the
related mineral properties.
The Company’s asset are reviewed for indication of impairment
at each balance sheet date. If indication of impairment exists, the asset’s
recoverable amount is estimated.
The estimated cash flows used to assess recoverability of the
Company’s exploration and evaluation asset carrying value are developed using
management’s projections for long-term average copper, gold and molybdenum
prices, recoverable reserves, operating costs, capital expenditures, reclamation
costs, and applicable foreign currency exchange rates. Management makes
estimates relating to current and future market conditions. There are inherent
uncertainties related to these factors and management’s judgment when using them
to assess mineral property recoverability.
The Company believes that the estimates applied in the
assessment of recoverability are reasonable; however such estimates are subject
to significant uncertainties and judgments. Although management has made its
best estimate of these factors based on current conditions, it is possible that
the underlying assumptions can change significantly and impairment charges may
be required in future periods. Such charges could be material.
Environmental rehabilitation
Minimum standards for site reclamation have been established by
various governmental agencies that affect certain operations of the Company. The
determination of reclamation costs requires assumptions with respect to future
expected costs and legislation in effect at that time. Changes in these
assumptions could have a material effect on the amount required to be recognized
as an environmental rehabiliation provision.
Share-based payments
The fair value of share-based payments and warrant issuances is
calculated using the Black-Scholes option pricing model. Option pricing models
require the input of highly subjective assumptions including the expected price
volatility of the Company’s shares and the expected life of the option. Changes
in the subjective input assumptions can materially affect the fair value
estimate.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
DISCLOSURE CONTROLS AND PROCEDURES
Management is responsible for designing, establishing, and
maintaining a system of disclosure controls and procedures. Disclosure controls
and procedures are designed to provide reasonable assurance that material
information relating to the Company is made known to management, particularly
during the period in which the annual filings are being prepared and that
information required to be disclosed by the Company in its annual filings,
interim filings or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported within the time
periods specified in securities legislation.
The Chief Executive Officer and the Chief Financial Officer
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of December 31, 2011. As a result of the material weakness identified during
the assessment of internal control over financial reporting, as described below,
management has also concluded that its disclosure controls and procedures were
not effective as at December 31, 2011.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management is responsible for designing, establishing, and
maintaining a system of internal control over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in Canada.
The Company designed its system of internal control based on
the Internal Control-Integrated Framework established by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The Chief Executive Officer and the Chief Financial Officer
assessed the design and the operating effectiveness of the Company’s internal
control over financial reporting as of December 31, 2011.
Based on that assessment, management concluded that, as at
December 31, 2011, the Company’s internal control over financial reporting was
not effective due to the existence of a material weakness. A material weakness
existed in the design of internal control over financial reporting caused by a
lack of adequate segregation of duties in the financial close process. The Chief
Financial Officer is responsible for preparing, authorizing, and reviewing
information that is key to the preparation of financial reports. He is also
responsible for preparing and reviewing the resulting financial reports. This
weakness has the potential to result in material misstatements in the Company’s
financial statements, and should also be considered a material weakness in its
disclosure controls and procedures.
Management has concluded, and the audit committee has agreed
that taking into account the present stage of Western’s development, the Company
does not have sufficient size and scale to warrant the hiring of additional
staff to correct the weakness at this time.
There has been no significant change in internal control over
financial reporting or in disclosure controls and procedures from July 1 to
September 30, 2012 that has materially affected, or is reasonably likely to
affect, the Company’s internal control over financial reporting or disclosure
controls and procedures.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
FINANCIAL INSTRUMENT RISK
The Board of Directors has overall responsibility for the
establishment and oversight of the Company’s risk management framework. The
Company has exposure to market, liquidity, credit, currency, and interest rate
risks from the use of financial instruments. Financial instruments consist of
cash and cash equivalents, short-term investments, other receivables, and
accounts payable and accrued liabilities.
Market risk
The Company does not generate cash from its operating
activities. Its principal source of funds is the issuance of common shares. It
uses the capital raised from the issuance of its common shares to explore and
develop its Casino Project with the goal of increasing the price of the
Company’s common shares. Western’s common shares are publicly traded. As such,
the price of its common shares is susceptible to factors beyond management’s
control including, but not limited to, fluctuations in commodity prices and
foreign exchange rates and changes in the general market outlook. Should Western
require funds during a time when the price of its common shares is depressed,
the Company may be required to accept significant dilution to maintain enough
liquidity to continue operations or may be unable to raise sufficient capital to
meet its obligations.
Liquidity risk
Liquidity risk is the risk that the Company will be unable to
meet its financial obligations as they come due. The Company uses cash forecasts
to help ensure that there is sufficient cash on hand to meet short-term business
requirements. Cash is invested in highly liquid investments which are available
to discharge obligations when they come due. The Company does not maintain a
line of credit.
Credit risk
Financial instruments that potentially subject the Company to
credit risk consist primarily of cash and cash equivalents and short-term
investments. These financial instruments are at risk to the extent that the
institutions issuing or holding them cannot redeem amounts when they are due or
requested. To limit its credit risk, the Company uses a restrictive investment
policy. It deposits cash and cash equivalents in Canadian chartered banks and
purchases short-term investments that are guaranteed by Canadian governments or
by Canadian chartered banks.
Currency risk
Currency risk is the risk that the Company will lose
significant purchasing power to operate its business as a result of changes in
currency rates. The Company raises funds in Canadian dollars. The majority of
the Company’s expenditures are incurred in Canadian dollars. To limit its
exposure to currency risk, Western maintains the majority of its cash and cash
equivalents and short-term investments in Canadian dollars. The Company did not
have a material amount of financial instruments denominated in foreign
currencies as at September 30, 2012 or December 31, 2011.
Interest rate risk
The Company is exposed to interest rate risk on its cash and
cash equivalents and its short-term investments to the extent that the
institutions that hold or issue those instruments cannot pay the interest earned
on them by Western. Potential losses in interest income are not material.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis contains certain
forward-looking statements concerning anticipated developments in Western’s
operations in future periods. Statements that are not historical fact are
forward-looking statements as that term is defined in the United States Private
Securities Litigation Reform Act of 1995 and forward looking information as that
term is defined in National Instrument 51-102 (“NI 51-102”) of the Canadian
Securities Administrators. Certain forward looking information should also be
considered future-oriented financial information (“FOFI”) as that term is
defined in NI 51-102. The purpose of disclosing FOFI is to provide a general
overview of management’s expectations regarding the anticipated results of
operations and capital expenditures. Forward-looking statements and information
(referred to herein together as “forward-looking statements”) are frequently,
but not always, identified by words such as “expects”, “anticipates”,
“believes”, “intends”, “estimates”, “potential”, “possible” and similar
expressions, or statements that events, conditions or results “will”, “may”,
“could” or “should” occur or be achieved. These forward-looking statements are
set forth principally under the heading “Property Overview” and elsewhere in
Management’s Discussion and Analysis and may include statements regarding
perceived merit of properties; mineral reserve and resource estimates; capital
expenditures; feasibility study results, exploration results at the Company’s
property; budgets; work programs; timelines; strategic plans; market price of
precious and base metals; or other statements that are not statement of fact.
The material factors or assumptions used to develop forward-looking statements
include prevailing and projected market prices and foreign exchange rates,
exploitation and exploration estimates and results, continued availability of
capital and financing, and general economic, market or business conditions and
as more specifically disclosed throughout this document. Forward-looking
statements are statements about the future and are inherently uncertain, and
actual achievements of Western and its subsidiaries may differ materially from
those reflected in the forward-looking statements due to a variety of risks,
uncertainties and other factors.
Western’s forward-looking statements are based on the beliefs,
expectations and opinions of management on the date the statements are made, and
Western does not assume any obligation to update forward-looking statements if
circumstances or management’s beliefs, expectations or opinions should change
except as required by law. For the reasons set forth above, investors should not
place undue reliance on forward-looking statements. Important factors that could
cause actual results to differ materially from Western ’s expectations include
uncertainties involved in fluctuations in gold, copper and other commodity
prices and currency exchange rates; uncertainties relating to interpretation of
drill results and the geology, continuity and grade of mineral deposits;
uncertainty of estimates of capital and operating costs, recovery rates,
production estimates and estimated economic return; the need for cooperation of
government agencies and First Nations in the exploration and development of the
property and the issuance of required permits; the need to obtain additional
financing to develop the property and uncertainty as to the availability and
terms of future financing; the possibility of delay in exploration or
development programs or in construction projects and uncertainty of meeting
anticipated program milestones; uncertainty as to timely availability of permits
and other governmental approvals; and other risks and uncertainties disclosed in
Western’s Annual Information Form, Western’s annual report on Form 40-F, and
other information released by Western and filed with the applicable regulatory
agencies.
| WESTERN COPPER AND GOLD CORPORATION |
MANAGEMENT DISCUSSION AND ANALYSIS |
| (Formerly Western
Copper Corporation) |
Three
and nine months ended September 30, 2012 |
| (Expressed in Canadian dollars, unless otherwise indicated)
|
|
Cautionary note to U.S. investors: The terms “measured
mineral resource”, “indicated mineral resource”, and “inferred mineral resource”
used in this management discussion and analysis are Canadian geological and
mining terms as defined in accordance with National Instrument 43-101, Standards
of Disclosure for Mineral Projects (“NI 43-101”) under the guidelines set out in
the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) Standards
on Mineral Resources and Mineral Reserves. We advise U.S. investors that while
such terms are recognized and required under Canadian regulations, the SEC does
not recognize them. “Inferred mineral resources” in particular have a great
amount of uncertainty as to their existence, and great uncertainty as to their
feasibility. It cannot be assumed that all or any part of an inferred mineral
resource will ever be upgraded to a higher category. Under Canadian rules
estimates of inferred mineral resources may not generally form the basis of
feasibility or other economic studies. U.S. investors are cautioned not to
assume that any part of an inferred mineral resource exists, or is economically
or legally mineable. Disclosure of contained metal expressed is in compliance
with NI 43-101, but does not meet the requirements of Industry Guide 7 of the
SEC, which will only accept the disclosure of tonnage and grade estimates for
non-reserve mineralization.
