Breaking News

Explorer Spin-Off Is A Win-Win

By The Gold Report Stock MarketsMar 05, 2018 01:52AM ET
Explorer Spin-Off Is A Win-Win
By The Gold Report   |  Mar 05, 2018 01:52AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Fund manager Adrian Day looks at the two-part transaction that he believes will create two strong, focused companies.

Almadex Minerals Ltd. (V:AMZ, 1.51) announced earlier in the week a 19.9% investment in the company by major Australian miner Newcrest Mining Ltd. (AX:NCM) along with a plant to spin off everything in the company except the El Cobre project. (Newcrest's $19 million investment would also remain in the company.) The investment was done at a premium to the market. It will be recalled that Almadex itself was the result of a spin- off from Almaden Minerals.

Big budget for big property

El Cobre contains several porphyry occurrences and these are known to require lots of drilling. After discovering the first deposit, Almadex has drilled aggressively, both within the initial zone and outside, consistently returning strong results. But after a couple of equity raises, it was clear that Almadex needed a company with deeper pockets to continue the drilling. Rather than optioning-out the project, Almadex chose to have an investor in the company. It believes that the $19 million investment will be sufficient to explore the entire property over two to three years and bring the project to a resource stage. Newcrest has rights to maintain its 19.9% interest in any further raises but has no rights over the project itself.

The transaction is clearly a win for El Cobre.

New exploration company with cash

The spin-off will retain the following:

  • several royalties, including on Almaden’s Ixtaca project, as well as a newly created 1.75% royalty on El Cobre
  • all of the company’s exploration projects
  • cash and bullion (about C$4.5 million) as well as the portfolio of investments in junior companies, plus up to four million shares in Almadex.

By spinning off the projects (and the cash), the company can now make sure these other exploration projects get the attention they deserve. Inside the same company, given the choice of drilling x, y, or z property or drilling more on El Cobre, the choice was easy. Now each segment will have its own CEO and its own funds. A new CEO will be appointed for Almadex. Almaden will also hire an experienced mine-builder to take Ixtaca forward. Now the father-and-son Poliquins can give attention to the rest of the property portfolio, doing what they do best.

So the transaction is clearly a win for the other exploration projects.

The company estimates it will take about three to four months to close the transactions; the spin-out requires shareholder approval. It is possible that the spin-off company will retain the name Almadex ("ex" for exploration), while the company holding El Cobre will have a different name. For now, though, we will refer to Almadex and the spin-off.

Both companies will be cashed-up for activities

It is also likely that the company will undertake a small equity raise to increase the cash in the exploration spin out, to ensure more-than-sufficient cash for its exploration activities. This cash will effectively go to the exploration spin-off, while the raise by Newcrest will effectively be post-spin off and be retained for El Cobre.

Given that this transaction is a win-win, enabling both the advanced El Cobre and the earlier stage exploration projects to receive proper attention, and allow the Poliquins to focus their energies on exploration, which is their skill-set, we think the combined shares will trade much higher over the next year or two. The shares have rallied since the announcement on Monday, from C$1.34; as the shares settle back, as they probably will, Almadex is a buy.

Disclosure: 1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Almadex. I determined which companies would be included in this article based on my research and understanding of the sector.

Explorer Spin-Off Is A Win-Win

Related Articles

Explorer Spin-Off Is A Win-Win

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email