(B)(N) ARZ Aurizon Mines Limited

Deal Book. The management and Board of  Directors of Aurizon Mines have said “Now, just a minute, there” to the unsolicited bid – the fourth since 2008  – by Alamos Gold Incorporated to take over their company (Marketwire, January 15, 2013, Aurizon Responds to Unsolicited Offer). Indeed. Although we don’t own the stock of either of these two companies because both of them are trading below the “price of risk” or Risk Price (SF) and have been for some time, it’s still interesting to think about what it means for one company to take over another. What difference does it make to we who own them in our portfolios? Please see Exhibit 1 and 2 below.

The stock price of Aurizon has, predictably, popped to the takeover price of $4.65 a share which is a 36 percent premium over the stock’s closing price of $3.40 on Friday. And now it lingers with no place to go but down or up and down but mostly down (apparently). On the other hand, the Risk Price (SF) is a dollar more, $5.60 to $5.75, and represents “fair value” if the new owners are actually able to produce the demonstrated values that shareholders believe are there. Please see our Post, The Price of Risk, August 2012 or The Nash Equilibrium & Its Stock Price, October 2012, for more details and additional explanations of the “price of risk” and what it means. Aurizon has never paid a dividend so we as shareholders can only make money by buying and selling the stock to each other and one wonders where all that production – 803,000 ounces of gold from November 2006 until December 2011 according to the Company – is actually going or would we be just as happy with owning gold in the ground, so to speak?

Exhibit 1: (B)(N) ARZ Aurizon Mines Limited – Risk Price Chart

Aurizon Mines Limited, head quartered in Vancouver BC, is a gold-producer engaged in the acquisition, exploration, development and operation of gold projects.

(Please Click on the Chart to make it larger if required.)

From the Company: “Aurizon is a gold producer with a growth strategy focused on developing its existing projects in the Abitibi region of north-western Quebec, one of the world’s most favourable mining jurisdictions and prolific gold and base metal regions, and by increasing its asset base through accretive transactions. Aurizon has eight properties in Quebec, which include an advanced-stage gold development property of the Heva and Hosco West Extension areas.”

Alamos Gold has made an all cash offer of $780 million (Reuters, January 14, 2013, Alamos Gold to buy Aurizon Mines for about C$780 million) and in support of its bid has been acquiring Aurizon shares over the past few days and now owns (it is said) at least 26 million Aurizon shares or more than 16 percent of the issued and outstanding Aurizon shares.

Alamos Gold Incorporated has a current market value of about $1.8 billion and last year paid a cash dividend of $0.20 per share or $24 million in total to its shareholders for a yield of about 1.3%.

Exhibit 2: (B)(N) AGI Alamos Gold Incorporated – Risk Price Chart

Alamos Gold Incorporated is an intermediate gold producer and owner of Salamadra group of concessions in the State of Sonora, Mexico. Exploration and development operations include the Mulatos Mine and a number of other development projects in the region.

(Please Click on the Chart to make it larger if required.)

If we sharpen our pencils based on what we know – and we don’t know the future – Aurizon has 165 million shares outstanding and a current Risk Price (SF) of $6 for a “risk adjusted price” of $990 million and Alamos Gold has 121 million shares and a current Risk Price (SF) of $19 and, therefore, a “risk adjusted price” of $2,300 million. Since these are “apples and apples” and it’s a cash deal, we can add them ($3,290 million) and divide by the 121 million shares of the combined company to impute a Risk Price of $27 to the combined company which it will need to earn and is substantially above the current stock price of $15 to $19.

The RiskWerk Company does not own any of the common stock of either of these two companies and has no financial or fiduciary interest in these transactions.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of  investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.