RE:RE: RE: SHARE PRICE.yruso22 wrote: NP. Sounds like there are many reasons that could account for the low share price.
yruso22,
Let me clarify on what I meant by my response to your original post. When I said it would be stupid to ignore the bearish perspectives, I meant I have given these bearish points a great deal of thought, or more simply, my goal in any of my investments is to not be blindly bullish.
Each bearish point made in my post *could* be valid, but this bearish sentiment could also manifest in different ways. A factor deemed bearish could accurately reflect the lower intrinsic value of Alexandria Minerals, which means a lower valuation is warranted. The same factor also has a market aspect, especially if it’s a generally accepted idea by the investor community, where fragile confidence, weak sentiment, and low expectations could unnecessarily hurt Alexandria’s equity values.
So, when analyzing Alexandria, we must deal with both the intrinsic value and the perceived value of Alexandria, which might be very different. The intrinsic value, which should follow assets value, is what Alexandria is worth in a fair auction, while the perceived value is what a share of equity can be sold for in a market exchange. When a significant difference between these two factors exist, then a significant investment opportunity *may* also exist.
Although, I place more weight on analyzing the intrinsic value of Alexandria, these more market-oriented perspectives still could affect my investment. For example, perpetually depressed sentiment has hurt Alexandria’s equity valuations, which leads to more expensive equity financing. This dynamic has increased the amount AZX investors have to pay to wait for its exit strategy or other positive value adjustment from unknowable events, e.g. drill results, Sprott investment.
It’s a simple but difficult to explain concept. The bearish points in my last post are part of my actual process of playing devil’s advocate on my investment thesis. So, I will now use this post to refute the bearish points I had made in my previous response.
A huge amount of uncertainty exists with AZX, which makes many people uncomfortable. This uncertainty includes the BoD fight, legal risk on EO's stupidity, hostile takeover risk, etc.
A lot of uncertainty seems to exist, but I think the future is much clearer than the market understands. The BoD is firmly in control, and EO will almost certainly lose the vote in the upcoming and ill-conceived special shareholder’s meeting.
Admittedly, I am less certain about potential legal risk from EO’s exercise of futility, but from what I can tell, the BoD and its advisors have the necessary expertise and experience to navigate these complex situations. Furthermore, the BoD is the only party in this disagreement that can show actual evidence of wrongdoing, which was forwarded for review to the authorities. This leads me to believe EO is in a weak position to legally hurt Sprott Asset Management, the BoD, or the current makeup of Alexandria Minerals.
A hostile takeover is a legitimate risk, but Alexandria is a widely-held company. The best way to mitigate the risk of a bad deal is a large group of engaged and active shareholders. From this message board alone, I suspect we would all be surprised at how large of a voting percentage we possess. Before we can cross that bridge, we first must recognize what a bad deal looks like, then we need to be able to clearly articulate in simple terms why its bad deal to encourage more people to vote against it. Even if a hostile takeover takes place, Alexandria is so undervalued that I believe we would still get a decent premium, above the current share price, especially after the upcoming resource estimate. This doesn't mean a bad deal isn't worth fighting against, but IMO, our actual risk is lower than currently perceived by the market.
Low insider ownership makes some people question management's motives
This is one of the “rules” that some people use to reflexively avoid certain investments, which allows them to focus their attention only on companies that fit a certain criterion. Although this might slightly shrink the market bid for Alexandria in the equity markets, low insider ownership can actually be seen as beneficial for our current situation. A potential takeover bid should standalone on the merits of the deal, and without high insider ownership, it will be difficult to ram through a poor deal past current shareholders. In addition, Eric Sprott is positioned to benefit the most from maximizing the share price of Alexandria Minerals.
Many aspects of AZX could be done better, investor relations, website, etc.
Yes, this could be important if Alexandria Minerals planned to be long-term going concern. However, recent evidence suggests the BoD is prepared to sell the company within the next 12 months, with a high probability for a sale to occur as soon as possible. In a takeover situation with multiple bidders, the value of the underlying assets is much more important than equity valuations.
Some concerns might exist about what happened with the Integra/ELD deal, which hurt many investors. It makes the value proposition from a takeover less straightforward.
After the price ran up with high expectations, Integra was richly valued when El Dorado made its takeover bid. The amount paid was near the NPV projection for Lamaque alone. Although this episode highlights the importance of which company wins the bidding war for AZX, currently depressed valuation should help create real value for most companies in most takeover situations.
I believe many investors see a rollback in the near future, and they refuse to jump in front of it under any circumstance.
With the BoD rejecting Eric Owen’s financing, a stronger case can be made no further dilution will be made before a sale, and AZX’s messy capital structure will be cleared by the future acquirer. In addition, Eric Sprott stands to lose the most from actions that hurt near-term shareholder value, which is likely the main reason Eric Owens’ financing plans were blocked by Peter Gundy. The clearer Alexandria can demonstrate it has a near-term exit strategy, without needing a financing, then the more positively the market should respond.
Many investors see a high share count as a deal breaker.
Heavy share dilution is without question a red flag, but in my research, I have shown how Alexandria has more than made up for this costly financing with building up its underlying asset valuation. Although it has been slower than we like, it’s difficult to deny the value of the current asset portfolio. In addition, it appears to BoD is trying to avoid additional dilution in the future.
ES has a lot of warrants around the 0.09 level, which can act as an overhang around this level
This is a short-term concern that should rectify itself after the current uncertainty is reduced from the resource update and the terms of a potential takeover are made available. The amount of warrants owned by Eric Sprott is another reason why the BoD will seek a deal that maximizes the value returned to shareholders.
AZX has a history of underdelivering on modest expectations, and the market is not giving the company the benefit of the doubt.
True enough, but the drilling results in 2017 have a distinctly different feel. The upcoming resource estimate has a wonderful opportunity to beat market estimates and show the economic potential of the current resource at Orenada. Expectations are so low for Alexandria, it shouldn’t take much of a beat to force the market to readjust its valuations.
AZX is a slow driller that wastes too much money on non-drilling activities.
For better or worse, this has been the Eric Owens' model of building value, which had its pros and cons within a challenging environment. Since Eric Owens has been terminated, it’s unlikely Alexandria will continue to adopt his strategy, especially when its current focus is selling its assets.
The financing gets cringy.
Now that Eric Sprott took his pound of flesh during the previous private placements, he has the incentive to preserve shareholder value instead of diluting it further. He already financed Alexandria to help it get to this point, and I don’t foresee why he would want to dilute his investment more. Since December 2017, all evidence shows that Eric Sprott is actively preventing any activity that leads to further dilution.
IMO, the market is waiting for the actual RE to alter their view on AZX's valuation
The market is not willing to give Alexandria the benefit of the doubt, which means its waiting for all of the uncertainty surrounding the company to be resolved before raising its valuation. By the time investors wait for most of the risk to be removed, then it also means missing the best opportunity to realize share appreciation. IMO, the underlying value of Alexandria's assets supports my more bullish thesis, which can be backed up with data and evidence. However, to appreciate this underlying value of Alexandria Minerals, one must put in a lot of time and effort in their research, which many people are unwilling or unable to perform.
The recent run-up from 0.05 to 0.10 at the end of 2017 was solely based on the higher probability of a near-term exit strategy, which shows high skepticism remains on everything else.
IMO, the exit strategy is not fully priced in yet, and the current opportunity seems to be completely misunderstood by the market. From delays in the resource update and headline risk from Eric Owens, the market is in wait-and-see mode, which again IMO, gives the rest of us a great investment opportunity.
People who bought AZX at 0.2-0.4 have seen a decent profit, and they may feel the need to lock-in gains.
This might be the appropriate decision for investors based on their unique situation. At this time, some people may have met their personal investment goal with a double or triple of the share price, or they may have other reasons to sell, e.g. derisk their portfolios or need the cash. However, IMO, I cannot think of another investment that has this much opportunity to appreciably move higher in such a short time frame. This situation seems like an optimal risk/reward opportunity for me.
So, when I said it would be stupid not to appreciate the bearish points, I meant you should understand the risk, reward, and why for each of your investments. Don’t be blindly bullish on Alexandria Minerals. Don’t solely rely on another person’s opinion on why you should own Alexandria Minerals. It could be the right or wrong investment for you. For my personal due dilligence, I have to think and rethink about how my thinking on this investment could be wrong. However, based on the evidence so far, I continue to believe Alexandria is the best investment opportunity for me and my current situation, especially over the next 3-6 months.
GLTA,
NP
Disclosure: I own AZX, this is not financial advice, do your own DD