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Although indeed tucker should have choosen some other words, as this board is there to share information and to learn from each other, he is absolutely right that the share consolidation does not change the fundamentals of the company and the way it is valuated, neither does it rise any risk for more dilution.
Let me show that with an example:
Say we have 350 million shares a $ 1.80, resulting in a market cap of 630 million. The cash flow from operations is 10 million per quarter, 40 million a year, 11 cents a share, meaning the company is valuated at 15,75 its operational yearly cash flow. (1.8/0.11) The company furthermore reports a net profit of 8 cents a share, meaning its p/e is 22.5
Now suppose it will consolidate its shares with 5:1
The company then has only 70 million shares a $ 9 each, meaning its market cap is still 630 million. Its operational cash flow of 40 million is 57 cents a share. Again, or should I say still, the company is valuated at 15,75 its operational yearly cash flow (9/0.57). Also its p/e ratio stays exactly the same as 9 divided by 40 cents is 22.5
With another example you can easily show that also dilution risk is not affected by a share consolidation:
Say the company has capital needs of 90 million. With the shares still at 1.80 it needs to issue 50 million new shares. The total dilution is 50 divided by 350 or 14%. After the consolidation it needs to issue 10 million new shares as they are worth $9 each. 10 divided by 70 is again 14%.
These examples show that the valuation of the company, as well as dilution risks, are not affected by the share consolidation. Having said that, I like to focus now on the dilution risk itself. Nolan Watson simply mentioned that there is no need for issuance of new shares. Why not believe him ? The company has sufficient cash (currently 38 million), has the availability of a 50 million revolving credit and is generating another 3.5 million each month. Besides that, they have some 700 ounces of pure gold in the safe and can furthermore choose to call in an early exercise of the warrants, bringing in another $50 million (2014 warrants only) to $ 70 million (2014 and 2015 warrants), not to mention that there is the possibility that Brigus Gold will choose to pay 36 million by year end, to pay off 50% of its streaming obligations towards Sandstorm.
Well done, unlimited. Allow me to add that up for you:
$50M (Line of Credit)
$1.1M (Gold on hand)
Total is $195.7M. Plus approx. $3.5 million cash flow monthly, increasing over time. Sandstorm currently has about $90 million and, in extremis, could have close to $200 million available for new investment! And that's without an extension of its line of credit, which considering how well the company is performing and the cash guarantees it secures, could probably be arranged by the next three-year renewal if warranted.
Although we'd probably all prefer the warrants were left unredeemed for now and for Brigus to get to keep its hard-earned cash (it looks like it's going to need it to stay on track with Black Fox Extension), I don't see any need going forward to issue more shares. I'll stick with my expectation that there will be no further dilution of shareholder value, unless of course it is necessitated by an extremely profitable, highly leveragable acquisition. The kind that none of us would be crying in our morning porridge over.
I just wanted to add to what longpicker has said about this board. This board should be the poster child of all message boards and I thank everyone of you who take the time to share your opinions, ideas and experience with all of us. Like many of you I have more than a few irons in the fire but this is the only board that I have ever posted on. Thanks again everyone.JB
Stock dilution does not necessarily dilute shareholder value. It does dilute ownership but if the funds raised are invested in positive NPV projects they will in fact both dilute ownership and increase shareholder value. Basically it all comes down to management once again. If they make good deals shareholders are helped and poor deals they are hurt, stock dilution or no dilution.
The calling in of the warrants, is something that I over looked, for more capital.
With Brigus repaying the 50%, I believe I recall Nolan saying something that, that probably wouldn't happen.
I'm at work tonight, so I wish everyone a safe evening. :)
Nolan Watson said that, .....several months ago. In the meantime things have changed substantially at Brigus. They have 34 million in cash, they expect to raise 10 million from warrant exercises and operational cash flow will be 43 million for the remaining of the year (based on $ 1,650 for gold). They planned to spend 8 million for exploration and 27 million for underground development this year....leaving enough room to repurchase half of the stream.
Brigus has to do what's in the best interest of their shareholders. Sandstorm is making 2 million each quarter on this deal, that is 8 million a year. 50% of that can be repurchased by Brigus for a bargain price of 36.6 million. I say bargain price as the production is expected to further rise over time and the future extension is not taken yet into consideration. I am pretty sure that Brigus can arrange another 50 million convertible debenture at a 6 or 7% rate now that they are on track making money big time.
@Unlimited: "Although indeed tucker should have chosen some other words, as this board is there to share information and to learn from each other, he is absolutely right that the share consolidation does not change the fundamentals of the company and the way it is valuated, neither does it rise any risk for more dilution."
I agree with you 100%. My point with Tucker was that sharing information is more conducive when it is done using less derogatory language and tone. You, he, and I are on the same page regarding the RS... 'nuff said.
P.S. Unlimited, thanks for the reminder about the possibility of the warrants being called early. I'll need to keep sufficient cash accessible.