ASX shells going to the greener pastures of Quebec and Ontario – Part 2

Read part one.

The excitement of a deal grows once land packages are acquired and announced to the market.  

Analysts consider the project’s location, geologists emphasise the importance of proximity, and management highlights the impact of the acquisition.  

However, things become more complicated when it comes to payment and understanding the company’s financial status.

The payment options are straightforward – all cash, shares, or a combination. But the deal’s details can make or break the value for companies, management, and investors seeking quick profits.  

I have gathered some valuable insights after analysing around 30 ASX-listed shell companies and examining their deals. 

~ A$2M TRANSACTIONS 

• Companies with cash on books usually preferred paying that way. However, another pathway is the issue of shares. 
• There is a clear trendline of the transaction cost vs. land size. The above trend line usually gets justified through the land being on a geological structure or proximity to a significant discovery gets mentioned. 

• A$120 per hectare is an average of all the transactions we have analysed of land vented into ASX shells over the last 16/18 months.  

• – ASX: CRR Critical Resources is one of the earliest ASX shells. Around 18 months ago, vended land in Ontario at ~A$130 per hectare. 
• ASX: WR1 Winsome Resources acquired Jackpot land package at A$380 per hectare. 
• ASX: CY5 is one of the latest added “additional” Auclair land packages to its existing portfolio at A$58 per hectare. 

What Next: A Capital Raise! 

All good things come to an end. In investment cycles and for the ASX shells, it’s a capital raise. Investors are ok with a capital raise as long as funds go into the ground and field work exploration. However, the timing and structure of the capital raise are more critical. Usually, this is either a game-changer or a game-breaker. 

Companies with solid hits tend for an early capital raise while the share price moves upwards. Others take advantage of Canadian flowthrough while it’s on a premium. Then there are others whose timing becomes completely wrong and who raise capital when the price is low, and no action is made on the ground, while an average investor is disengaged and not keen to hear their story. That’s where, unfortunately, several ASX currently are! 

Insight #:1 Analysis suggests that ~35 ASX shells have vented Canadian land packages into ASX-listed companies. Almost 80% of them are ripe for a capital raise in next 3/4 months and most probably would be done at a massive discount both for hard cash and premium raise for Flow-Through.  

Insight #2: Details of which ASX-listed shells with a Canadian focus come next for a capital raise is anyone’s guess. Based on the Q3 burn rate and Q4 cash position (announced so far), anyone with a field program commencement will raise capital, starting drilling will require money, and acquiring additional land will require capital.  

Three things are likely to happen in the small end of speculative companies;  

1. A) Discovery and raise capital at a premium, which is possible but not likely. Narrative and market updates will revolve around rock chips. 
2. B) With so many ASX shells requiring potential capital over the next few months, there will be pressure to provide a heavy discount for a capital raise and add options to incentivise punters, building a very loose register.
3. C) Merging business with other shells or pivoting to another commodity or region.

 The fertile lands of Quebec and Ontario have much more to give to ASX shells, and Brazil and Ghana also look attractive, where the Chinese can come in as cornerstone investors! 

Let’s see.