GXY 0.00% $5.28 galaxy resources limited

I'd agree if we were doing a cash TO, but an all scrip TO with a...

  1. 3,325 Posts.
    lightbulb Created with Sketch. 3585
    I'd agree if we were doing a cash TO, but an all scrip TO with a factored debt purchase would probably work out at a net nil cost. And strangely enough, in this situation a scrip TO is exactly what will benefit the existing A40 SH'rs the most right now - because GXY has so much upside not yet built into the price. A40 has around 38kt (probably more now) of high quality inventory which has already been expensed, and doesn't look like it can be sold easily by A40 at the moment, but if I am right about the chemistry match up with GXY, then GXY can sell it over the next 12 months to its existing customers without impacting its own output sales - since we already know that the GXY customer demand this coming 12 months is higher than GXY's MtC output. That is the ace that GXY holds. GXY has the customer channel, A40 doesn't. For GXY the inventory has no additional cost as the expense of creating it has already been met by A40. Hence the inventory will pretty much net out the debt, so that acquiring A40 gives GXY for the price of scrip either a massively extended mine life, and/or massively increased output, and a high quality operational plant to which they can apply their already acquired and proven tuning skills to slice the operating costs as they see fit. They might even be able to use the GXY fines circuit on the Bald hill output (don't know whether that is practical or cost effective, but it is worth asking someone else who is an expert in this). Combined with eliminating the management duplication and wiping out the debt's 15% interest BH could rapidly be turned into a profitable operation if owned by GXY, not to mention that the BH region is largely unexplored with very high probability of extensive resources remaining to be proven because they prioritised going to production fast not mine life and valuation. That is why they needed so much debt funding in the first place.

    Sitting looking at this from the outside, this looks like an almost too perfect deal. If I was GXY CEO I'd be finding this very hard to resist.

 
watchlist Created with Sketch. Add GXY (ASX) to my watchlist

Currently unlisted public company.

arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.