RE:RE:RE:RE:RE:RE:Possible Scenario Yet another kick at the can in hypothetical RCG+ANX merger.
A merger may or may not happen but does lead to a convenient way to value RCG.
If RCG and ANX had a more similar mix of debt and equity a merger would be easily accepted.
I consider a a preferred/promissory note (“preferred”) as a third asset, possibly held by Sprott Lending, as means to consider various merger scenarios.
RCG has roughly half the assets of ANX (see below). ANX has 120M shares. In a merger ANX could issue 60M new shares to be used by RCG. For a total of 180M shares. Alternatively, RCG has 175M shares and could issue 350M shares. See note 3.
ANX 120M+60M=180M shares
RCG 350M+175M=525M shares
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Possible Merger Scenarios
A)
starting point
RCG Dec 31 2018
balance sheet $31.3
liabilities $18.3
shareholder equity $13.0M
ANX Dec 2018
balance sheet $57.9
liabilities $14.9
shareholder equity $43.0M
ANX has $14.9M or 26% of liabilities.
B)
simple merger
ANX+RCG Dec 31 2018
balance sheet $89.2
liabilities $33.2
shareholder equity $56.0M
A simple merger would result in 37% of liabilities.
C)
Introducing $10.2M of preferred shares (or promissory note) reduces the liabilities to 26%
ANX liabilities 14.9/57.9=26%
RCG liabilities 8.1/31.3=26%
ANX+RCG liabilities 23.0/89.2=26%
RCG+ANX balance sheet $89.2
ANX liabilities $14.9
ANX equity $43.0
RCG liabilities $8.1
RCG equity $13.0
Preferred $10.2
simplify
RCG+ANX balance sheet $89.2
liabilities $23.0
equity $56.0
Preferred $10.2
D)
before merger
ANX equity 36.2c/sh
RCG equity 7.4c/sh
dialling up or down the preferred gives various per share book values similar to RCG pre merger or ANX pre merger or other targets.
equity = 89.2-23-preferred
Pref RCG ANX comment
0.0M 12.6c 55.2c
10.2M 10.7c 46.7c see (C)
23.0M 8.2c 36.0c ANX-like
28.0M 7.3c 31.8c RCG-like
RCG per share based on 525M shares
ANX per share based on 180M shares
see note 3
E)
Ultimately cash needs to be raised to pay for RCG’s liabilities for a successful merger.
I haven’t defined what I meant by preferred shares. It is merely a placeholder - a mathematical variable. It could be something else like a promissory note. The purpose is to help me understand the options if there was a merger. And if there were a merger to understand if it was fair. Hopefully it is helpful to someone else.
I wouldn’t be surprised with alternate solution based on a debt, equity, or some mix of the two instead. Or a solution that slices the pie differently.
E)
Also, if merger happened there might be are a number of other RCG debt holders that might prefer shares over cash. Those shareholders might convert debt to shares before a merger. That would change the amount of shares attributable to the preferred shares.
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notes:
1)
A RCG ANX merger would increase the amount of gold held
ANX by roughly 50%. This already reflected in the assets on the balance sheets of the two companies. The value of the assets are already priced in.
Specifically the increase in ANX ounces would be ...
Indicated 46%
Inferred 87%
Total uncapped 64%
2)
Other considerations...
ANX has active mining operations (important cash flow)
RCG has 20M of tax credits (off-balance sheet item)
RCG has a mill.
I assume these items are a wash in a merger.
3)
ANX has twice the assets of RCG and is a convenient starting point for imaging how the pie will be sliced.
ANX 120M+60M=180M shares
RCG 350M+175M=525M shares
the following ratios are the same
350:120
175:60
525:180
2.92:1
actual shares
RCG 174.8M
ANX 118.8M
4)
Balance sheets
RCG Dec 31 2018
balance sheet $31.3
liabilities $18.3
shareholder equity $13.0M
ANX Dec 2018
balance sheet $57.9
liabilities $14.9
shareholder equity $43.0M
5)
Interesting but meaningless coincidence.
The NPV post tax for Dufferin $89.2M
The combined balance sheets are $89.2M
RCG $31.3M
ANX $57.9M
6)
Market price does not figure into my calculations.
7)
It use round numbers for shares for three reasons.
I am lazy.
There is so many unknowns that more precision isn't required.
Others are doing the haggling.
8)
Dufferin, Tangier, Forest Hill are all appropriate targets for narrow view mining.
https://www.anacondamining.com/narrow-vein-mining
9)
Investments are possible.
Buyouts are possible.
A merger with a different company is possible.
An ugly bust up is possible.
I haven’t modelled any of that.
10) math errors are possible