NextPhase wrote: If you hate speculation and opinion, then please do not read this post. :-)
If a deal with Probe Metals happens, then I do have some perspectives that should allay fears that it would be a "sweetheart deal" which could harm AZX investors. From my research today, it appears Eric Sprott is much more invested with AZX compared to Probe Metals. If our favorite poster biotech is right with his interesting assessment that AZX is worth almost nothing, then Mr. Sprott is a very stupid investor for buying so many expensive warrants. :-)
So, would there be a pound a flesh that ES would realize from a potential deal? Yes, of course, it appears to me he will get rewarded from the increase in AZX share price over the warrants he purchased in 2017. He basically invests in "higher-risk" warrants to leverage his bet but makes this a lower-risk investment with his shrewdness, influence, and connections. In other words, he has less uncertainty than typical retail investors, which lowers his risk to make bigger bets.
This potential premium paid to acquire Alexandria would be justified, because the underlying assets are significantly undervalued by the market. To me, this is a classic takeover target. Now, if you were Eric Sprott, would you endorse a deal between two companies where you would accept a harmful offer for yourself? Of course not, ES will be more on the side where the premium will be paid... duh? :-)
For Eric's brand, he also cannot create a reputation for harming retail investors. Why? Because companies would begin selling off in the future when he makes future investments. It's bad for business. Luckily, as AZX investors, we do not have to worry about that, because IMO, he currently benefits the most from realizing a higher price for AZX.
If Probe Metals were to offer a deal for Alexandria, then I think it would be very beneficial for AZX investors, not only in the short-term but also the in longer-term time frame. First, this potential deal would create an exciting story to pitch to new investors. If all the current drilling plans continue on schedule, then we are talking about maybe 3.5-5 million ounces of gold by the end of 2018? Based on how these properties are valued now, that alone would be a conservative 500m+ market cap IMO.
Next, a consolidated Cadillac Break property will allow teams to
prioritize drilling over a larger land package. This means more opportunities for monetizing and exploring these deposits. It should also make it easier to raise money and encourage larger funds and financial managers to start investing.
For many reasons, it appears to be a great synergy, even when many mergers are
disappointing. - The locations are right next to each other with a minimal consolidation period
- Probe is well-capitalized, which should allow aggressive drilling on at least two exciting resources in 2018 without much/any dilution
- Probe Metals has proven and well-respected leadership
- Alexandria has some of the best mining real estate available with great infrastructure
- Alexandria is currently at depressed prices and a higher multiple from Probe Metals would give instant value to all investors concerned
- Both companies are explorers and wouldn't require a radical change of strategy. We as AZX investors, would be comfortable with Probe's business model... which is very different from the ELD deal.
I know this is pure speculation, and I could be totally wrong... but I agree with GH, I think there is something here. It just makes too much sense to me. :-)
So, what are the key takeaways?
- If we find out the Probe Metals is trying to make a deal with AZX, then don't panic! I think it would be very good news.
- Why is it good news? I believe AZX would realize a nice short-term premium in the deal, because ES and possibly AEM would benefit. Plus, we would not surrender longer-term potential, like what happened in the ELD deal with Integra.
- The potentially new combined entity would have great leadership, well-financed, exciting drilling programs, and a huge land package in a proven mining district.
- A larger company will make it easier to raise money in the future and for larger funds to invest.
- I think everyone, not named Eric Owens, would benefit from this hypothetical deal, which is why I think it has a good possibility.
From my perspective, if a deal happens, then great! If not, then still great! The key to remember is we are invested in severely undervalued assets, which allows us many ways to realize value.
Feel free to add your own thoughts or let me know if you think I'm overlooking something. It should be an exciting week! :-)
Disclosure: I own AZX, but I do not own PRB.
GLTA,
NP