RE:RE:RE:RE:AZX SALE Currower,
I understand we all want the best deal possible, but we still need to be prepared for all possible scenarios.
I like Next Phases work and In this case I must respectfully disagree.
Disagree in what way? This will be a straight buyout by Agnico or Eldorado.
I think these companies are all possibilities, but I'm not quite sure why you are 100% certain of anything with our current information. What reasoning gives you this much confidence that we are receiving a cash buyout? The whole Val-d'Or area will consolidate soon, but I'm still not sure how this will be accomplished.
Despite what other posters have insinuated, a low takeout target by Probe Metals would likely not lead to a major drop in the share price, post-transaction. Typically, most M&A deals occur with a major premium over the real asset value of an acquired company, which would justify a drop in share price after the completion of a deal. Remember, AZX's assets are already severely depressed.
For our specific situation, let's assume AZX merges, while being ridiculously valued at $75 million, with Probe at a value at $125 million. If this deal was revealed, then I'm sure this board would have its fair share of wailing and gnashing of teeth. However, before you start hurling obscenities in my general direction, let's take a step back and objectively look at this combined company.
Following the new resource estimate, I will assume AZX will have a total of 3 million eq. ounces of gold after the new RE, while Probe Metals will have 1.5 million ounces. Seems like a terrible deal for AZX so far, right? :-)
Let's keep going.
After budgeting for 85,000-meter drill program in 2018, Probe Metals would have around $15 million in cash. So, let's conservatively assume this 85,000-drill program eventually leads to an additional 500,000 ounces of gold.
Let's also say Probe finances the deal by issuing 60 million shares @ 1.30. This would increase PRB's share count to ~153 million shares.
So, assuming PRB/AZX has ~5 million ounces of gold with ~$15 million cash to start 2019. By staying at the share price of 1.30, then the market would be valuing this combined company at 1.3 * 153 = 200 - 15 = 185 / 5 = $37 per ounce of gold.
Are people on this message board really trying to convince me buying shares in an exploration company like this, valued at only ~$200 million with over 5 million ounces of eq. gold and $15 million in cash, would lack upside?
We can argue if this is an "unfair" deal for AZX investors, which it definitely could be, but the idea PRB's price would immediately plummet due to a low takeout price or because it lacked future upside... does not make any sense. If Probe Metals overpaid for AZX's assets, then the price would have a greater likelihood of falling post-transaction.
Next, let's finally assume this company eventually doubles in value to $400 million, due to having a multiple closer to Probe Metals current level, by valuing the new multiple at ~$77 per ounce. Probe is currently valued at 120 mcap - 25 cash = 95 / 1.5 = ~$63.3 per ounce.
Okay, now let us take another look at the market value of Alexandria Minerals before the Special Committee was formed.
In November 2017, AZX was valued by the market at a low around $27 million @ 0.055 per share.
The AZX portion of this new hypothetical combined company is 75 / 200 = 37.5%. 37.5% of 400 million is $150 million. So, a 5.5 bagger. If the company reached $600 million market cap from multiple factors and renewed bullishness in the sector, then the AZX share would be $225 million. A 8.3 bagger.
A 5.5 bagger from a straight buyout in cash would need to be around ~$150m . A 8.3 bagger from a straight buyout in cash would need to be around ~$225 million.
Obviously, cash would provide immediate benefits to AZX investors with minimal risk... however, you will still have to find someone willing to pony up this kind of money in a depressed sector.
My point in this post is not to promote a Probe Metals deal, especially when given such a low takeout price, but to simply show value still exists for AZX investors... even in a "bad scenario". So, please don't go jumping out of windows if we receive "bad news" in the next couple of months. :-)
NP
Disclaimer: I own AZX, but I do not own PRB, this is not financial advice, do your own DD.