A 5:1 hypothetical RCG+ANX merger.
RCG has roughly half the assets of ANX (see below). And as stated in other posts that leads to a 2.91:1 share conversion.
This time I work it backwards.
What if there were a 5:1 share conversion ?
ANX 120M+35M=155M shares
RCG 600M+175M=775M shares
This would be a fair conversion :
a) if RCG had 35/120 = 29% of the assets of ANX or
b) if RCG had 50% of the assets of ANX, offset by 10.2M of additional debt compare to ANX using a 26% liabilities as a benchmark.
$33.2M - $14.9M - $8.1M = $10.2M debt.
8.1/31.3=26% liabilities
14.9/57.9=26% liabilities
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A)
starting point
RCG Dec 31 2018
balance sheet $31.3
liabilities $18.3
shareholder equity $13.0M
ANX Dec 2018
balance sheet $57.9
liabilities $14.9
shareholder equity $43.0M
B)
A simple merger would result in …
balance sheet $89.2
liabilities $33.2
equity $56.0
liabilities 33.2/89.2= 37.2% liabilities
C)
book values in a 5:1 merger wouldn’t change
before merger
ANX equity 36.2c/sh
RCG equity 7.4c/sh
after merger
56M/155M=36.1c/sh
56M/775M=7.2c/sh
D)
Ultimately cash needs to be raised to pay for RCG’s liabilities. I don’t attempt to address how that would happen. As a placeholder I will suggest a promissory note with some opportunity to convert to debt or shares in the future.
I wouldn’t be surprised with alternate solution based on a debt, equity, or some mix of the two instead.
E)
Also, if merger happened there might be are a number of other RCG debt holders that might prefer shares over cash. Those shareholders might convert debt to shares before a merger. That would change the amount of shares attributable to the preferred shares.
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notes:
1)
A RCG ANX merger would increase the amount of gold held
ANX by roughly 50%. This already reflected in the assets on the balance sheets of the two companies. The value of the assets are already priced in.
Specifically the increase in ANX ounces would be ...
Indicated 46%
Inferred 87%
Total uncapped 64%
2)
Other considerations...
ANX has active mining operations (important cash flow)
RCG has 20M of tax credits (off-balance sheet item)
RCG has a mill.
A discount on assets from a RCG perspective
Increased debt from the ANX perspective, ~$10.2M
I assume all these items are a wash in a merger.
3)
5:1 share conversion
ANX 120M+35M=155M shares
RCG 600M+175M=775M shares
the following ratios are the same
600:120
175:35
775:155
5:1
actual shares
RCG 174.8M
ANX 118.8M
4)
Balance sheets
RCG Dec 31 2018
balance sheet $31.3
liabilities $18.3
shareholder equity $13.0M
ANX Dec 2018
balance sheet $57.9
liabilities $14.9
shareholder equity $43.0M
ANX has $14.9M or 26% of liabilities.
5)
April 12, 2019 ANX traded at 35c.
I would expect a merged company to trade at:
35c under the ANX ticker (155M shares), or
7c under the RCG ticker (775M shares)
book
ANX 36.2c/sh
RCG 7.4c/sh