merge pdy and agu

Merging PDY & AGU would make it much easier to entice a major party to invest in the fe project. Currently the Chinese (or anyone else) wanting to grab a large share of the project will have to deal with both companies and may try to use this as an excuse to get in cheap.

If PDY & AGU merge they will control 100% of the project, thereby simplifying the ownership structure and ensuring everyone's interest is being looked after in any future talks with major players. It will also be easier to get brokers interested as they like things to be simple and clear cut. At some point both AGU and PDY will require tens of millions of dollars to get this to the next level. It will be much easier to promote as one company rather than 2 separate companies each trying to raise the required future capital.

The combined entity can speak as one large voice with ownership of potentially 5bt of ore. They could very easily either sell off all other minerals to a separate party for cash or shares, or spin them out into a new company.

Now assuming PDY becomes the larger single entity, they would have to issue 604m new shares to AGU holders at 2:1 (using current PDY sp 2.5c vs 5c for AGU). Add in another 236m options to cater for various categories of AGU options and 140m new partly paids to replace the 70m AGU pp, PDY would need to add 980m (less 70m for the 35m AGU they already hold) new shares on a fully diluted basis to get the full ownership of the fe project. In the process, they will raise $6m from the current AGU options/partly paids when they are converted in the future.

Also assuming all PDY options are eventually converted (except the 55m 4c options due to expire on May 31), including the future piggybacks, PDY will have a fully diluted total of 3.35b shares raising around $30m in the process.

So combining the 2 companies, there will be large entity with 4.25b shares. At PDY's current sp of 2.5c the company will be valued at $106m and be holding around $40m from the conversion of all options/partly paids and current cash.

As brokers would prefer a tighter register, PDY could then consolidate at 1:20, thereby having just 212m shares on issue valued at 50c (20 x 2.5c).

Imagine after the next round of drilling at Telecom Hill and intial drilling at Mt Padbury the sp doubles from current low levels (not really out of the question imo), the new PDY would start to have a m/c sizeable enough to no longer be ignored.

IMO the combined entity needs to get above 100m m/c asap to attract the big players and brokers alike. Currently PDY has an undiluted m/c of $40m and AGU $15m.

AGO has shown how to do it. Merge companies with similar objectives. Become a major player and others want to talk to you. Brokers also seek you out, not the other way round.

The cost savings by having only 1 Board of directors controlling the Peak Hill fe project will save a couple of million dollars per year alone. Then there is the chance to either float out a new company or sell off rights to other minerals. There may even be a chance to add the rights to all other minerals held by PDY/AGU with tenements held by others looking to have a large presence in the area. Combine tenements with others for a share of a larger footprint in a very prospective area by being free carried to bfs stage also would make sense.

I believe there is a strong case for PDY & AGU to merge. I hope at some time soon the directors can see the benefit. Why have 2 sets of management sitting in the same office space, both working on the same project? Picking the best management from both both companies, (say John Saunders, Gary Stokes and Terry Quinn) would go a long way towards adding some long overdue credibility to the larger entity.

Just my opinion

Disclosure: AGU & PDY holder

Point of interest: ACS is currently talking to interested parties regarding the sale of their Magnetite Range project bordering Asia Iron's Extension Hill project approx 50 km from GBG's Karara project. They have a Jorc resource of 391mt @ 30%, including 70% in the indicated category. I understand the MD has just returned from China and there should be an update out soon regarding progress of talks with potential buyers (preffered option) or developers of the project. Keep in mind that the fair price attributed to the resource has been calculated at around $100m by indepedent analysts, so it will be interesting to use as a guide for trying to work out the value of our ground.