Post by
pablo87 on Nov 21, 2018 5:07pm
Stage is set for ZAR to be acquired...
Zargon's asset base is not exactly clean - ND is a great asset but in the US and no tax pools remain, conventional is not too bad though lots of A&R and Little Bow is high cost.
In this market environment with those assets, there's no way to sell the company to someone that would pay cash to debentureholders. Only thing that works is debentures converted into shares.
At 10 cents, we're looking at $45M enterprise value which is 3.8X field cashflow.*
At 12 cents, we're looking at $54M enterprise value (assuming debbies buy at 10 cents) which is 4.5X field cashflow.
At 8 cents, we're looking at 3x field cashflow.
*(In the 9 months period year to date, they have around $9M of field cashflow. The cashflow after capex annualized to 12months is $7M wihch is essentially the debentures interest + SG&A - somebody buys it has no interest cost, they won't entirely cut the SG&A but they may cut some on the ops costs. Even if you think there is $2m deferred capex, then they could still clear $5M (the hedging gain/loss I assume at $1.2M for 9months).
For the buyer, there is still upside at ND, upside of shuttering Little Bow ASP (which I believe is bleeding cash) and upside of selling ND down the road for $$$. For shareholders and debentureholders, everything out there is close to 52week low so assuming a share exchange, there is likely to be similar upside to what we have now AND less downside.
Getting back to reality, therefore debbies have 2-3x upside from what they are trading at now (which is all that matters) whereas shares are not even 2x. Debbies should rise, shares shoudl fall under this scenario. So I would say the proposal is more than fair for debentureholders.
*(There was also at Q3 ~$1M of working capital and $2M of land (tax losses have no value atm IMO) by Q1 end we may be looking at -$2M and $2M respectively so basically nothing there.)
As for Receivership, its a matter who you trust - Zar's CEO/BoD or the Receiver...
GLTA