Hycroft Mining Holding Corp (HYMC)

[LouisDesyjr]

Update on 17.5% warrant valuation

Update on older posting for valuation of 17.5% warrants :
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=116399029

From the recent days, it looks like the company will have 3,000,000 shares of common in NewCo and the ‘Adjusted Equity Value’ will be $402 million. With those changes, here is an update to my older posting about the valuation of the warrants.

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).

As an example of what the strike would be:

A: Assumptions:
1: ‘Adjusted Equity Value’ is $402 million
2: ‘Total Share Number’ in Newco is 3 million common shares.

B: Warrant Strike Price Calculation
The formula is ‘Adjusted Equity Value’ divided by ‘Total Share Number’
402 / 3 is $134.00 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 so 3,000,000 x 17.5% = 525,000 warrants

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’. If Newco will have 3 million shares, and the existing shares are 126 million, the calculation will be 3 / 126 or 0.02381. With the conversion factor, you multiply that times number of shares currently held times 17.5% to get the total number of new warrants in NewCo.

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%

Newco is expected to have 3 million shares.
( 3 / 126 ) * 100 shares * 17.5% = 0.416 warrants

In general, for every 240 existing shares of common, a person would get one warrant in Newco.
( 3 / 126 ) * 240 shares * 17.5% = 1 warrant in NewCo


D: Calculate the value of the warrants.
I will use the example were an existing 240 shares got issued 1 warrant.
The intra day price is $.045; so 240 shares will cost 240 * $0.045 or $10.80

The 240 shares will give one warrant. The warrant have a strike price of $134.00 so in order to convert the warrant, you will need $134.00 at conversion time (or sell it into the retail market.

The total cost of the one warrant converted into one Newco common is the $10.80 plus the $134.00 for a total of $144.80.


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

In this example, if the market value of the company is $402 million of less, the warrants will only have a time value, since the Newco shares will be below $134.00 strike price.

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 $434.4 million
434.4 / 3 = $144.80/share; warrants total cost is $144.80 so net is zero for 240 old shares; the trade breaks even.

If Newco common trades for $500 million
500 / 3 = $166/share; warrants total cost is $144.80 so net is $21.20 share for 240 old shares.

If Newco common trades for $800 million
800 / 3 = $266/share; warrants total cost $144.80 so net is $121.86/share on 240 old shares.

Louis J. Desy Jr.