Batero Gold (BAT.V) has announced an ‘improved’ offer for the shareholders of CB Gold (CBJ.V) as shareholders now can elect to receive C$0.06 per share of CB Gold in either cash or shares.
However, there’s one small catch; Batero Gold has limited the amount of cash it’s willing to spend on buying out the CB Gold shareholders to 50% of the total purchase price, so if 75% of the CB Gold shareholders would want to receive cash, they will end up with at least 1/3rd of the equivalent in Batero shares.
If we would assume the majority of the shareholders (based on 169M outstanding shares) are expecting to receive the cash from Batero and Batero indeed has to pay 50% of the total value in cash, its cash position will be reduced by C$5.1M (84.5M shares X C$0.06) to C$6M (without taking CB Gold’s liabilities into consideration). Meanwhile the total amount of outstanding shares will increase from 88M to 156M (84.5M X 0.8), and this will reduce the net cash/share to C$0.037/share and limit the possibility to do any decent work at the Vetas project. If you’d deduct paying CB Gold’s liabilities to the tune of C$3.4M (which will be necessary, considering CB Gold’s original defense strategy was to threaten its shareholders with insolvency), the net cash position would drop to less than 2 cents per share. Enough to keep the lights on for a year, but the new Batero shareholders will immediately face more dilution as –contrary to Red Eagle Mining – Batero won’t have sufficient cash on hand for a decent-sized exploration program at Vetas. But maybe that’s exactly what the Navarro-Grau family wants as it would be able to take another Batero placement down at an even lower price.
We still think Red Eagle’s (RD.V) offer is superior as the company’s true value will surface sometime in the next 12 months. We will release an updated report on Red Eagle later this week, wherein we will focus on the importance of the crash of the Colombian Peso, which has the potential to increase the NPV/share by 28 cents to C$0.70 per share of Red Eagle.
Disclosure: The author holds a long position in Red Eagle Mining. Please see our disclaimer for current positions.
