Signal Gold Inc T.SGNL

Merger DD : Let's Talk About Dilution

[DoumDiDoum]

The "high dilution" argument has been proposed to support the idea that it’s better to sign the first offer of getting (only) 30% of the merged company. Some even said that we would be diluted by 60% if we are paying that debt alone, saying no to that deal. The 60% is obtained if we are paying the debt all in equity. The good thing about the work NEXG and SGNL managements have done is that they convinced Nebari to buy a 0.6% NSR for US$6M on Goldboro, leaving the debt amount to about US$14.4M (SGNL’s part) with a mature date being in June 2027. Here is the arrangement proposed with Nebari:

Restructured Credit Facility with Nebari to deleverage combined entity:

• It is proposed that Signal’s outstanding credit facility of approximately US$20.4 million with Nebari and NexGold’s US$6.0 million facility with Extract Capital will be repaid.
• NexGold is working to arrange a new US$12 million secured credit facility with Nebari over a term of 30 months and the issuance of US$4.0 million of NexGold shares, with a one (1) year right to place.
• The arrangement would also grant a 0.6% NSR on the Goldboro Project to Nebari for US$6 million with a 100% buy-back right at the Company’s option for the first 30 months.

See the highlighted text? US$4M worth of shares will be issued to Nebari. That means, if we use a generous 1$ SP post-merge that 4M shares will be added to the float (dilutive). I’m aware that Nebari would prefer to have a participation in the merged company, but management always said they was a good partner for SGNL and we should not assume that they no longer want to sit at a table and renegotiate the credit facility with us. Surely something can be arranged by adding a NSR to Goldboro.

If SGNL extends the mature date to February 2027 this would give management time to receive the permits, get our rerate and then finance the equity part at a higher SP. Dilution will be less in that scenario than the 60% proposed.

I also did some back of the napkins calculations to see how SGNL shareholders could be diluted if the deal is done and compare it with the 60% dilutive factor advanced by some if we go all equity to pay the debt ourselves with equity. Base on the DD I have done, despite what the market is currently giving to SGNL (and our market cap is currently topped by the merge deal), I consider both companies to be of equal values as SGNL is way more undervalued than NEXG is.

So, we currently have 255M shares outstanding. SGNL just announced that the Financing has been closed and 120M new shares will be issued if the merge deal goes through. Right there, there is a 32% dilution done at 8.7 cents.

Now, for a shareholder that did not participate in the above mentioned financing, which I assume is the case for the majority here, since we will get 0.1244 NEXG shares, representing 29% of the merge company, you will be diluted by an extra 21% if we valued both companies to be equals (which I think it is). Your dilution factor is now 53%.

The merged company will have 132.86M shares after the merge deal (76.21M NEXG +10M FT financing + 46.65M SGNL). Add to that the 4M shares that will be added with the new deal with Nebari, which give a 3% dilution. We are now at 56% dilution.

Add to that the current obligations NEXG has regarding the different royalties they have on their properties. I already demonstrated that they will need to start paying Sprott in June about CAN$3.75M yearly with the following terms:

• The Company may elect to satisfy the payment on the loan in cash or the issuance of common shares of the Company at a price per common share equal to the greater of: (a) a 5% discount to the five-day volume weighted average price of the five consecutive trading days prior to the date payment is due and (b) the maximum permitted discount by the Toronto Stock Exchange, at the Company’s sole discretion. The minimum payments are secured by a general security agreement and is registered against the Company’s assets.

 We do not know what will be the SP next year, but let be generous and say that it doubles to an average price of about $1.50. Issued shares would be around 2.63M a year at the 5% discount price of %1.425 a share. This will add a dilution factor of about 2% for each of the first 2 years, meaning 4%. Adding it to the 56% calculated before, we are now near 60%. And I was generous 1.50$ NEXG share price average. Is that close to the 60% if we go alone?

I think we should not panic here with the 60% dilution factor if we are paying the debt alone as we would be diluted about the same with the current deal anyway. Please do your DD about NEXG financial situation and you will see, as I am, that they are in deep need of royalty free Goldboro to solve their financial challenges. This merge deal is presented as being a “friendly” offer but on my side, I want “friends” around me that are considering us as equals and respect what we were building over the years.

P.S.: Shiftyone is on my Ignore list. So if you see him challenging anything in that post, just make sure you verify his information before considering it.

[shiftyone]

This is so flawed in so many ways. Errors, omissions, faulty math, and conclusions. Perhaps later I will point some of them out.  But these books DDD writes.  They are not worth even reading.

[karlschranz]

For such a Bs you don't need shifty....

[DoumDiDoum]

Ok, may I ask you what is currently BS according to you?

[GrumpyInvestor]

On March 21st, SGNL announced that the Company had … « initiated a process with BMO Capital Markets as its financial advisor to evaluate potential strategic alternatives to advance the Goldboro Project … The strategic alternatives review could include, among other things, a joint venture transaction, a sale of the Company, the Project, or all the assets of the Company, a merger or other

[DoumDiDoum]

Well, it does not mean you should trust 100% those people. The deal has some nice angles to it, it's just that the balance is not fair at all. BMO could have said "Listen, merging with a company having about the same challenges and timelines than you could be a good thing. NEXG corresponds to that profile". BMO is not shareholder of the company and was there as a counselor. They

[therager]

Been a long time since I posted here. DDD, I feel your pain and I have been a shareholder since Orex days and my entity still controls a significant amount of SGNL shares. SGNL made a crtical mistake by taking on too much debt and put themselves in this situation. They made a serious miscalculation on time to final permits. To me, the NEXG merger is the only plausible solution at this stage. Kevin

[Rogg47]

DDD is the perfect example of someone who felt in love with a stock and because of that, can't be objective regading SGNL situation!! He has proven that a ton of times on this board!! The actual deal is the "best" (obviously not a good one, that's different...) that the process came out with (maybe the only one too...). Coming out publicly stating that your company is to sell is

[DoumDiDoum]

Roggy, just for the record, Brankruptcy is NOT around the corner. They want you to think it is, but it's not.

[Rogg47]

Hey DDD you can believe what you want and I don't care!! You have proven in the past years being in an unicorn world, having some pink glasses!! Why do you think SP is soooo low, that there's no interest in SGNL for a long time, why this was the "best" deal on the table?!  I'm not relying on anybody regarding my bankruptcy theory, that's my own opinion!! Think about

[wearethebest]

Hope China has lots of gold in their grand because it took 45 years to get that hole to China. Can't be much on the way down because never seen none yet. What a game told you they would sell out again and it goes on and on.

[DoumDiDoum]

Roggy, you are the one living in some fantasy world. Have you done your work? Did you go through the documentation available from both companies? Did you contact management to verify your "Bankcruptcy" theory?  I did all that. I'm not saying that we should refuse the merger, I'm only saying that the 29% offer IS RIDICULOUSLY low! What you do not get I think is that refusing

[shiftyone]

DDD states bankruptcy is not just around the corner.  Rogg, I tend to agree with you if this doesn't go through.  But one can take their chances and reject it. DDD keeps using the 29% number which they know is no longer accurate since the upsizings of the placement.  Even they did a bunch of calculations Oct 25 where they put SGNL receiving 35%.  (but I always feel a need

[Rogg47]

Ayayaye is this a joke?!? You sincerely think that Management will give an honest and serious answer regarding my bankruptcy theory?? 1st, if it's not public information already, this would be considered as confidential information, not really ethical, what do you think?? 2nd, if they are really stupid to disclose that kind of information, you sincerely think that it would be in their best