Hycroft Mining Holding Corp (HYMC)

[LouisDesyjr]

Possible valuation method for 17.5% warrants

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=114778856&txt2find=warrants
Earlier message about warrants

Documents #864

Document #785 – June 2015 operating report

Document #864 gives the formula that will be used to set the strike price for the warrants. In general, the strike price will be set in a manner to allow all claims that are ahead of the existing common shares (DIP, Swap, Secured, old unsecured, new issued debt) to be made whole first. That is the ‘Adjusted Equity Value’ calculation that is referred to on page 11 of the PDF file.

The number of warrants will be 17.5% of the new common shares (Total Number of Shares).

So far, from the June 2015 operating report, it looks like there will be at least $479 million as part of the ‘Adjusted Equity Value’. I am taking the Total Liabilities Subject to Compromise number. In order for the 17.5% warrants to have value, the company will need to be worth more than the $479 million after the plan is executed.

As an example of what the strike would be:

A: Assumptions:
1: ‘Adjusted Equity Value’ is $479 million
2: ‘Total Share Number’ in Newco is equal to the number of existing common shares, 126 million.

B: Warrant Strike Price Calculation
The formula is ‘Adjusted Equity Value’ divided by ‘Total Share Number’
479 / 126 is $3.80 as the strike price for the new warrants.

C: Calculated how many warrants the existing shares get
The calculation is 17.5% times Newco Shares.

To calculate how many warrants an existing shareholder gets, you also need to calculate the differences in Newco total shares and number of existing shares to get a ‘conversion factor’. As an example, if Newco will have 252 million shares, and the existing shares are 126, the calculation will be 252 / 126 or 2. With the conversion factor, you multiply that times number of shares held times 17.5%

Examples of calculating number of warrants with different conversion factors for a person holding 100 shares of ANVGQ
Number of Newco Warrants = (number of Newco Shares / existing number of shares ) times (number of ANVGQ shares held) times 17.5%

1: Newco has 126 million shares, same as old.
( 126 / 126 ) * 100 shares * 17.5% = 17.5 warrants

2: Newco has 252 million shares.
( 252 / 126 ) * 100 shares * 17.5% = 35 warrants

3: Newco has 63 million shares.
( 63 / 126 ) * 100 shares * 17.5% = 11.025 warrants


D: Calculate the value of the warrants.
I will use the example were the existing 100 shares got issued 17.5 warrants.
The intra day low is $.065; so 100 shares will cost 100 * $0.065 or $6.50
The 100 shares will give one 17.5 warrants. The warrants have a strike price of $3.80 so in order to convert the warrants, you will need 17.5 x $3.80 or $66.50

The value of the warrants after conversion depend on the market value of the company.

In this example, if the market value of the company is $479 million of less, the warrants will only have a time value, since the Newco shares will be below $3.80.

Value of warrants depending on market value of Newco Shares


E: Calculate the Newco Common share price
Market Cap / number of shares = Newco common share price

If Newco common trades for $500 million
500 / 126 = $3.96/share; warrants cost $3.80 so net is $.168/share; on 100 old shares (that result in 17.5 warrants for new shares) the profit would be $2.94 but cost today $6.50 so the trade loses money

If Newco common trades for $800 million
800 / 126 = $6.34/share; warrants cost $3.80 so net is $2.54/share; on 100 old shares (that result in 17.5 warrants for new shares) the profit would be $44.61 and only cost $6.50 today

The break even point in my calculations, where the cost of the shares equal the expected profit, is at about 526 million in NewCo market value. That make the shares 526/ 126 or $4.17/share, a net profit of $0.37/shares and the trade earns about $6.55, which is a few cents about what the 100 shares cost today.


The problem with this situation, is that I do not think Newco will ever trade about the $479 million needed to give the warrants any value. The only hope is that the price of gold goes back up to the $1,600 to $1,800 level and then maybe the warrants will have some value. There is some possibility of that happening if the Fed starts another QE program but that could be a few years away and may not last long enough for the warrants to be profitable.


Louis J. Desy Jr.