Alexandria Minerals Corp ALXDF

RE:RE:Merger with Probe?

[Schmoby]

NextPhase wrote: Voidhunter,

I believe a merger with Probe Metals would be mutually beneficial to both groups of shareholders. Alexandria is a poorly capitalized exploration company with a quality and expansive underlying asset base. The management team lacks business acumen, which hurts market valuations and financing efforts.

Probe Metals is a well-financed exploration company with a decent but modestly-sized land package, when compared to Alexandria Minerals. Probe Metals receives a higher valuation per ounce of resources due to many factors.

AZX investors should expect a short-term premium and a higher multiple on existing ounces. PRB investors should expect a discount to AZX's full valuation and will also benefit from this higher multiple on a larger combined asset base. 

AZX and PRB investors will also benefit from reduced overhead by eliminating redundancy with accounting, investor relations and marketing. This new combined company would be in a stronger position to move from advanced exploration to pre-production at a size that would also make more sense to the majors, like Agnico Eagle or Goldcorp.

Even if AZX is acquired at a steep discount, the deal could still work out quite well in the long-term for AZX investors. Let's say both Probe Metals and AZX agree to merge at equal value at $125 million. The new company would initially start at $250 million value, but I suspect Probe Metals would be able to at least maintain or even improve upon its $65-$75 per ounce multiple. 

If this PRB-AZX combined company can reach 5 million ounces within the next 12 months and keeping the current Probe multiple, the market cap could possibly be around $325-$375 million. This would be a very lucrative deal for AZX investors. Under this scenario, PRB investors would benefit too by seeing a more than doubling of their resources, with their share of the market value increasing by 30%-50%. 

Even if AZX was only valued at 1/3 of Probe, AZX investors could still see a near-term market value between $107m to $123m under this scenario. This combined company could eventually make a $1 billion market capitalization, which would be made possible from the new combined asset base, future resource growth, and higher gold prices. At that point, AZX investors could see a share of the market valuation under these two scenarios between $300m and $500m. 

Of course, a lot of risk and uncertainty exists with these speculations, and these very rough scenarios are simply being used as examples to my original comments. The main point I wanted to get across is that a deal would likely be mutually beneficial between AZX and PRB investors, and good upside should still exist despite being within a much larger company.

Anyway, those are my two cents on this subject.

NP

Disclosure: I own AZX, but I do not own PRB. This is not financial advice, do your own DD.

I would agree for the most part of your assessment NP. I think the combination of PRB and AZX would benefit both parties.