hypothetical RCG+ANX merger A hypothetical RCG+ANX merger.
Summary
The math assumes that the merged company raises $13.8M of cash with a third party (3PT) to pay-off and restructure debts. Under the hood, RCG component is restructured such that the ANX & RCG components have the same equity/asset ratios. A third party later does a $8.5M private placement as an equal partner at 35.8c/sh. The remaining gap in the balance sheet is filled with $5.3M of credit.
after the merger
assets $89.2M
liabilities $24.7
shareholder equity $64.5M
180M shares including 60M new ANX shares
35.8c per ANX share
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A)
starting point
ANX Dec 2018
total assets $57.9
liabilities $14.9
shareholder equity $43.0M
RCG Dec 31 2018
total assets $31.3
liabilities $18.3
shareholder equity $13.0M
key ratios from ANX
share price = 43/120= $0.358/sh
ratio of equity/assets = 43/57.9 = 0.743
B)
a simple merger would look like this
total assets $89.2
liabilities $33.2
shareholder equity $56.0M
C)
ANX has twice the assets/ounces as RCG (see note 1)
120M ANX
+ 60M RCG
= 180M shares
D)
RCG brings $13M of shareholder equity to the table.
If the RCG component was restructured along the same equity/assets lines as ANX it would like ..
13/0.74 = 17.5
RCG adjusted assets $17.5
liabilities $4.5
shareholder equity $13.0M
E)
the remaining assets, $13.8, could be allocated to third parties (3PT)
ANX 57.9
RCG 17.5
3PT 13.8
Total 89.2
F)
60M of shares would be divided between RCG and the third parties based on ANX share price of 0.358c
RCG 13/0.358 = 36.28M shares
3PT 60-36.28 = 23.72M shares
the third party assets would be
23.72/0.358 = 8.5M
G)
completed balance sheet is ..
Name assets equity liab
ANX 57.9 43.0 14.9
RCG 17.5 13.0 4.5
3PT 13.8 8.5 5.3
Tot 89.2 64.5 24.7
Equity/asset ratios are similar to ANX equity/asset ratios.
0.743 ANX vs 0.723 Total
Third party equity and credit are treated as one in the math.
They are likely on come from different entities.
shares
ANX 120.0
RCG 36.28
3PT 23.72
Total 180.0
where shares = equity/0.358
H)
Summary
assets $89.2M
liabilities $24.7
shareholder equity $64.5M
180M shares
35.8c per ANX share, or
7.42 per RCG share
If a merger happened there might be are a number of other RCG debt holders that might prefer shares over cash. Those shareholders can be consider to be part of the 3PT group.
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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)
I assume these items are a wash in a merger.
all other items are already baked into the balance sheets
3)
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
ANX has $14.9M or 26% of liabilities.
5)
The numbers are from the balance sheets as of Dec 31 2018. There is no haircut of assets values in this hypothetical merger.
The company might decide to use lower values for the RCG assets in the merged balance sheet, but difference would result in goodwill line item. The total assets would not change.
6)
Precision of the numbers.
Three digit numbers are used to help track the numbers in the text.
Two digits is probably close enough in practice.
eg.
share price = $0.358/sh
ratio of equity/assets = 0.743