RE:RE:RE:Merge & Acquisition Scenario: And If... Thanks guys for your input. So, for IQ if ANX goes by itself in developing Goldboro he sees 3$ to 5$ a share. For GoldNHill, it's between 2$ and 3$. So, just for continuing the discussion here, let's take a 3$ target since it's the minimum for IQ and the max for GoldNHill.
Atlantic gold was bought, with its Moose River mill producing 94k ounces yearly, at 800M$ with POG at 1400$. Goldboro is interesting as an exploration target with a possible multi-million ounces deposit, but there is no gold produced yet. So we cannot really compare ANX with Atlantic Gold as there are factors we do not know as of today, some risks that an eventual buyer will need to assess (and us as shareholders if we receive an offer):
- Will the mill construction be on time, on budget and working efficiently?
- Will the mill meet designed capacities?
- Is the resource model accurate?
- Will the POG be above 2000$ as forecasted for a long time?
- Will the necessary permits be delivered?
The eventual buyer knows these risks, however with the current context, some of them are ready to take more risks to get a multi-milion deposit in a safe jurisdiction. If we take the offer made to St Barbara last year as the base case scenario, let's try to come up with an offer number for ANX right now.
If we choose a "mathematical" way of getting a number using proportion base on both companies assets, we would get the following:
Atlantic Gold
Yearly Production of 94k oz
Gold price of 1400$ US (when they were bought out)
About 2,2M oz of M+I Gold in the ground
Buy out offer of 800M$ CAN (premium included)
Anaconda
Yearly production of 19k oz (representing 20,2% of AG production)
Gold Price of 1900$ US (representing 135% of last year price)
About 820k oz of M+I Gold in the ground (representing 37,3% of AG gold)
Buy out offer : 800M x 20,3% x 135% X 37,3% = 82M$
So, we would get 82M$, which is about the market cap we have right now! We sure don't want to sell this week in these conditions! So management, and I'm sure the current shareholders, will reject such an offer.
Clearly, we must wait at least for the FS to be published so we can get nicer numbers for the Goldboro deposit. Now, let's calculate how the new FS numbers could influence the 82M$ offer calculated.
Latest M+I resources for Goldboro at 1550$ GP was about 700k oz. If we increase the resource sby:
- 15% to 805k oz, the total ounces in the ground would be 925k and the offer could be 92,2M$
- 25% to 875k oz, the total ounces in the ground would be 995k and the offer could be around 100M$
- 50% to 1,05M oz, the total ounces in the ground would be 1,125M and the offer could be around 112,2M$
So it's better to wait for the FS to be published, no doubt about it! The SP could then be between 68 to 83 cents base on the offer done for AGB.
Now, let's try to calculate the scenario where we put Goldboro in production with 1M oz in M+I for all ANX deposits:
Yearly production of 70k oz (representing 74% of AG production)
Gold Price of 2000$ US (representing 143% of last year price)
About 1M oz of M+I Gold in the ground (representing 45,4% of AG gold)
Buy out offer : 800M x 74% x 143% X 45,4% = 384M$
Latest NI-43-101 talks about 100M$ in capital needed for pre-production and production for year 1 and year 2 for Goldboro. Let's be conservative and say that they will need to raise this money through equity only at 75 cents (median pre-production SP price from my 68-83 cents estimate above). That makes 133M more shares to the count. Let's round that to 150M shares with extra financing done until the mill construction. It means that the number of shares could turn around 285 millions at the time Goldboro will be in production. Based on our 384M$ buyout offer, that would mean 1,35$ a share. So, it's closer to GoldNHill 2$-3$ range than IQ 3$-5$! But like these guys said, it all depends on the price of gold and other surprises we will get from NFLD and other properties. We sure have a lot of discoveries that will add to the onces we have in the ground.
When I do my due dilligence, I try to base my estimates on real life data. Sure, the context is not the same than last year when St Barbara offers 800M$ for AGB and it's though to throw the "Gold Frenzy Effect" in those numbers. So add your own "Gold Frenzy" coefficient to the calculations and you might end up with 2$ or 3$ in a couple of years. But for now, let's wait for the FS so we could get rid of some of these "what if" scenarios to get more solid estimates.
In conclusion, investing in ANX is still sound by using these conservative scenarios. I would be really surprised to receive an offer right now to buy ANX. However, if the price of gold continues this up trend and the FS numbers are outstanding, then all bets are opened! Goldboro will add a lot of values to St Barabara portfolio in Atlantic Canada and this could bring us a nice premium if they want to buy us out! And if not, well, I'm willing to wait and get my dividends from ANX in 5 years from now...
Feel free to comment!
GLTA