Time for a Teuton spinoff... I decided to write this post because Teuton has been consistently trading below its 20% market cap value when compared to the main Treaty Creek driver, Tudor. However, after today's trading it is now only about $0.43 (10%) below, when ignoring all other properties, and most importantly, the 0.98% NSR on Goldstorm. Despite the relative performance rise today, I believe there is still "unlocked" value in Teuton.
My proposal is that it is now time to spinoff Teuton's 20% Treaty Creek interest into a separate company, let's call it "Treaty Creek Tetuon" or TCT. The tax folks can decide whether TTY gets spunoff as a shareholder dividend or the other way around. The main point is shareholders would be left with two companies: TCT & TUO. Prior to the spinoff, TUO should conduct another modest financing of say 2 million shares at whatever the market will pay ($3.50 to $4.50?), raising an additional $7 million plus.
TCT's only property would be the 20% interest in Treaty Creek. It could also be given some cash for working capital and administrative expenses; perhaps $3 to $4 million? In the future, I doubt they would have any difficulty raising funds as needed.
TUO would hold all other assets, including the Treaty Creek NSR. They would also have between $15 to $20 million in cash.
The benefit is TCT should trade at or near its 20% interest in Treaty Creek, probably at the same market cap as TUO is now.
TUO would have value separate from the 20% Treaty Creek interest. It would have sufficient cash for all administrative needs for many years, enough to obtain other properties to add to the portfolio, and do conduct modest work programs as needed. Most importantly, it would also unlock the value of the Treaty Creek NSR.
My very conserative estimate (based on a back-of-the-envelope spreadsheet) where I plug in drilling results etc, has Goldstorm at around 8 million ounces. I won't get into how i get these numbers because I make a plethora of assumptions, all which can be disputed (and take us down a rabbit hole). But based on those ounces with gold at US$1600, gold recovery at 90%, less the 3% NSR, and another 10% for the other deductions, I estimate the value of TUO's NSR on Treaty Creek at C$2.85 per share. You can discount it however you wish because, until production, it has no value. At an 80% disount, it is still worth C$0.57 per share.
You can all do your own calculations, which will likely come up with a higher value per share based on your own ounces calculation etc. The point being, is we need a way to unlock value of anything non 20% interest inTreaty Creek.
So TCT should trade around whatever TUO is now, $4.50.
TUO would have around $0.30/sh in cash and $0.60/sh (conservatively) in the TC NSR. Plus they would still have all the other properties & NSRs. I would argue it should trade at least $1.00 for this entity. Any hit on any other property would then be able to materially affect the company, and should be reflected in the price with lots of growth potential.
Comments? Is now the time for a Teuton spinoff? Cheers!