Almadex Minerals Is Extraordinarily Undervalued
Almadex is developing a potentially highly valuable copper-gold project in Mexico.
Newcrest Mining bought 19.9% of the project at a $75.3mm valuation.
Currently Almadex is worth significantly more than its market cap.
Almadex Minerals (OTCQX:AXDDF) was formed as a spin-off from Almaden Minerals (AAU) in mid-2015. Almadex is comprised of several exploration properties plus Net Smelter Royalty interests on projects managed by other companies. The idea behind the original transaction was that the value of the parts was greater than the sum of the parts under one corporate umbrella.
The crown jewel transferred to Almadex is the El Cobre copper-gold porphyry project in Veracruz, Mexico. A porphyry deposit is a deposit in which minerals like copper, gold and molybdenum are disseminated in a stockwork of small veinlets within a large mass of hydrothermally altered igneous rock. World-class copper-gold porphyry deposits can be worth several billion dollars.
The management team at Almadex believes that the El Cobre project has the potential to be a massive copper-gold deposit, characteristic of the deposits found high in the Andes - only this property sits near sea-level with the near-by infrastructure required for a mining project already in place.
El Cobre has the potential to be a company-maker. The project encompasses a 7,500 hectare claim block that covers copper-gold porphyry mineralization known to exist over a strike length of several kilometers. Early stage drilling has identified four distinct target areas that contain high grade copper-gold mineralization in both shallow zones and at depth.
While the it is too early in the development process to know with certainty if the El Cobre project will ultimately contain a world class copper-gold deposit, Newcrest Mining (OTCPK:NCMGY), a $13 billion market cap Australian mining company with several copper-gold properties, was impressed enough to pay $15 million in cash for a 19.9% stake in the El Cobre Project. This values just the El Cobre Project at $75.3 million.
In conjunction with this transaction, Almadex is spinning off everything else into a new company - "Spinco" for now - to shareholders. This includes a portfolio of in interests in 18 exploration projects; a 1.75% net smelter royalty [NSR] on El Cobre; a 2% NSR on Almaden Mineral's Tuligtic property; a portfolio of 15 additional NSRs on exploration projects in Mexico, Canada and the U.S.; up to 4 million shares of Almadex stock and sufficient working capital. El Cobre will remain with Almadex shareholders.
Mechanically, Almadex shareholders will receive 1 share of the new Almadex plus 1 share of Spinco in exchange for each current share of Almadex. The deal is scheduled to close by the end of May.
The transaction will enable Almadex to focus on the development of El Cobre plus "unlock" the potential value of all of the other assets currently held by Almadex. Newcrest will not have any interest in Spinco. In addition, Spinco will get the six drill rigs owned by Almadex. Spinco will lease the drills and the drill crews to Almadex plus use at least one of the drills for exploration of the Spinco properties.
The current market cap of Almadex, including in-the-money options, is $62 million. This is a 17% discount to value placed just on the El Cobre asset by Newcrest Mining. The "Spinco" stock will have 4 million shares of "new" Almadex stock plus the optionality value that can inferred from the 18 exploration properties and portfolio of project royalties included in the deal. The four million shares of Almadex stock, based on the current trading level of Almadex, is worth $4.7 million.