RE:Talked to AZX CFO at PDAC today !Marine2 wrote:
It sounds like after the up dated RE comes out AZX will be sold to the highest bidder. IMO
In my opinion Eric had it coming, you can’t keep issuing shares with out a rising share price now the board is forced to act,, fortunately AZX has a good asset to sell and make everyone rich,,, or just a little more wealthy !
Hey M2,
This information matches my expectations. Investors find good investments by recognizing a distortion in market pricing vs. the intrinsic value and hold with a patient long-term mentality. Great investments are when investors see this same dynamic and have the timing down. Eric Sprott is in this unique position, where he can nail down the timing for AZX by clearing out the management team and capital structure before revaluing AZX by auctioning off the underlying assets.
IMO, after a successful resource update, an auction with multiple bidders is the best-case scenario for AZX investors. Whatever known and unknown factors hurting Alexandria's current valuation from a market perspective is almost irrelevant at this point. The asset bidders will analytically and objectively judge AZX based on its tangible value, which is a much different approach from current market valuations by investors.
The value from the highest bid will be determined by the following factors: the number of companies bidding on AZX's assets, the value each bidding company places on these assets, the cost of capital for each company to acquire these assets, and where the resource industry is in the investment/divestment cycle.
Although we lack information on specific bids, we generally have a good idea about the factors leading up to a final number (which might be different number for each company)
The value of AZX's assets will depend on:
- CAD price of gold, copper, zinc
- Total ounces
- Grade
- Cost/economics of extraction
- Location/stability
- Potential for resource expansion
- Perceived cost/risk of exploration
The cost of capital will depend on each individual companies' situation:
- Interest rates/lending environment
- Balance sheets
- Equity valuations
The point in the investment/divestment cycle for the resource industry
- The number and type of M&A deals
- Market reaction to M&A deals
- Collective balance sheets
- Collective industry valuation
- Collective defined resources and grades
- Rate of organic resource growth
- Need for resource investment/replenishment
- Competition for new resource investments
It should be interesting to find out what the winning bid for AZX's assets will look like, but it seems like an optimal time to find out.
Random thoughts on the potential valuations
- XAUCAD is near all-time highs, which is currently well over $1,700, which alone justifies $100 XAUCAD per ounce
- @ 0.09 share price the market is valuing AZX at ~$23.91 per ounce of gold (MI and inferred)
- @ 0.09 share price the market is valuing AZX at ~$18.98 per equivalent ounce of gold (361,856 eq ounces from copper, 18,178 eq ounces from silver, and 90,842.16 eq ounces from zinc)
- @ 0.09 share price the market is valuing AZX at ~$15.01 per equivalent ounce of gold after including 600,000 from upcoming RE for a total of 2,869,489.65)
- After subtracting current assets, Probe Metals, where less than 50% of resources are indicated and only ~56% are open pit, is currently priced at ~$66.42 per ounce of gold.
- After the resource estimate, Orenada alone should have a much larger open pit resource than Probe, which may justify a slightly higher multiple for Orenada's price per resource
- At $66.42 (which is itself a discount), assuming a similar rate for equiv oz and 600,000 from new RE, would value AZX at ~$190.6 million.
- If somehow it gets close to that $100 an ounce, then with same assumptions, AZX' value would be around ~$286.9 million (or roughly half the price of the Integra deal)
- Multiple companies would benefit from an AZX acquisition
- Minimal exploration over the last five years has increased the need for mining companies to replenish their reserves
- Currently, no other resources of this size are openly for sale
- Competition among resource companies, especially streaming companies, is heating up right now in trying to grow reserves and resources
- Eric Sprott is positioned to benefit the most from receiving the highest premium realized from this asset auction
- Eric Owens proves he lost control of the company after being terminated, and it remains extremely unlikely that he will be able to change the BoD's current composition.
NP
Disclosure: I own AZX, this is not financial advice, do your own DD