Tuesday, June 21, 2016

Teranga And Gryphon Deal - Additional Remarks

Today I published an article on an acquisition of Gryphon Minerals by Teranga Gold. The article is available at Seeking Alpha website

The main thesis presented there is that it is a nice deal but only for Teranga. 
To remind my readers, Teranga is going to acquire Gryphon (with its flagship project called Banfora and located in Burkina Faso) for around US$49.1 million.
However, according to my calculations Gryphon is worth at least US$148 million.

That is why I think that Gryphon shareholders should say "NO" to this deal.

On the other hand, I cannot comprehend why the Gryphon management accepted this offer. For example, let me look at what the Gryphon shareholders put into the company over past years. 

The best place to find this figure is the company's consolidated statement of financial position, especially the issues included in the line called "Equity":

source: Gryphon 2015 Annual Report

The graph shows the figures as of the end of 2015. 

Summing up the following figures, I may find out how much money the Gryphon shareholders invested into the company:

  • Contributed equity: A$229.0 million
  • Accumulated losses: A$215.8 million
  • Total investment: A$444.8 million

So the Gryphon shareholders invested around A$444.8 million. 

It is around US$333.6 million, using the exchange rate between the Australian dollar and the US dollar of 0.75:1.

And today, when West African deposits are in fashion (read: there is high demand on them), the Gryphon management wants to sell the company for US$49.1 million. 

Additional remarks (added on June 22):

At this point, don't get me wrong. I do not mean that the Gryphon management has to sell the company at around US$333 million. No way, the company is not worth that amount of money. All I want to say is this: in my opinion, the price should be somewhere between the Teranga's offer (US$49.1 million) and the fair value (US$148 million). 

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