Red Eagle Exploration (XR.V) has announced it has entered into an agreement with majority shareholder Red Eagle Mining (R.TO) whereby the latter will issue 0.5 of its own shares per share of Exploration it doesn’t own yet. Using the recent closing price of Red Eagle Mining of C$0.26, this represents a value of C$0.13 per share of Exploration. Substantially higher than the sub-C$0.10 share price Red Eagle Exploration has been trading at the past few months.
The pro-forma merger consideration is lower than the C$0.15 placement the company conducted last summer, but there’s no doubt this is a good transaction. After all, the Exploration division would always have been at the mercy of the capital markets to raise money for exploration on its Colombian projects. And although Red Eagle Mining has had some issues of its own, forcing it to shut down the mill to re-think and accelerate the development process, the Santa Rosa mill has been restarted and produced almost 2,000 ounces of gold in February. We expect Red Eagle Mining to be able to continue to ramp up the production rate from here on, and the incoming cash flow could then easily be used to fund the exploration activities on the very exciting properties of Red Eagle Exploration (which we discussed HERE in a previous report).
The Red Eagles are in a rush, as shareholders will already have to vote on the deal in just a few weeks as Exploration has scheduled a special general meeting for April 5th.
As shareholders of Red Eagle Exploration, we see the advantage of being part of a cash flowing company (which was already calling the shots anyway), and are planning to vote in favor of the merger and to tender our position of Red Eagle Exploration as the 2 for 1 ratio is a very fair and reasonable offer.
Go to Red Eagle Mining’s website
The author has a long position in Red Eagle Exploration and plans to tender his shares to the Red Eagle Mining offer. Red Eagle Exploration is a sponsor of the website. Please read the disclaimer