PyroGenesis Canada Inc (PYRGF)

[Tom Joad]

re: the spinoff

How do we measure the value of the spinoff? Arcam acquired AP&C from Raymor for $35 million CAD in late 2013 or early 2014. Revenues in 2013 were around $6.5 million CAD in 2013 and they had 29 employees.

The question is, how much did Raymor pay Pyrogenesis to acquire the rights to produce Ti powder, or the equipment to produce it, or both? Raymor is private so no financial statements are available. Pyrogenesis was listed on the TSX by late 2011 but the transaction occurred around 2005. So no document that's publicly available has details on that.

So, the way I see it now, the expected value of the spinoff, with entirely subjective probabilities, is based on Pyrogenesis being able to manage industrial scale powder production successfully. If they're successful like Raymor I'll guess the outcome for value is $35,000,000 CAD. If not so successful, I'll guess $18,000,000. If a complete failure $0. I'm going with 45%, 45%, and 10% respectively, so we have

EV = 0.45 (35,000,000) + 0.45 (18,000,000) + 0.1 (0) = $23,850,000 CAD

They have 104,650,000 shares outstanding. Price per share of PYR is around 0.90 CAD on the Toronto exchange, so the market value is $94,185,000 CAD. They're now in micro, not nano, range in terms of valuation.

Anyway, we can expect about 0.25 CAD per share going by the EV above. They have several other products and services going. I'm just looking at the powder division by itself.

Now for a purely imaginary scenario. Let's suppose PYRB is a new company that has just been listed on the TSX, and has only this powder production facility they bought for 23.85 million CAD and has shares that sell for 0.90 CAD each with 104.560 million shares outstanding. Book value per share would be about $0.23 CAD so the price-book value ratio ends up being around 0.9/0.23 = 3.91.

For comparison, Arcam's price to book value is around 7.7 but peaked at around 20 in late 2013.

Arcam chart price/book

Remember, I used only the imagined book value of "the spinoff" to calculate book value and the price/book ratio. Only the expected value of the powder facility was used in calculating the book value The scenario I've given is entirely speculative but helps me evaluate, with not the most confidence, the value of the shares that we may eventually own in "the spinoff."