Wake up call to shareholders

Every shareholder should know what his shares are worth. At least he should have a model to get to a price under different circumstances.

I did a lot of research recently and I can say they have done a good job with the latest balance sheet. It fully reflects LOM.

So Troy has the following price components:
1. Karouni LOM: reflected fully in the balance sheet
2. Karouni Resources (PEA - LOM)
3. Karouni exploration potential (already nearly sure there will be a viable deposit with Goldstar)
4. Iron ore royalty in Brazil
5. 2% Sandstone royalty
6. 30% of Casposo
7. Tax value of carried losses

Current management needs to make sure the situation is stabilized. Troy will need money. Of course now that operations seem to have stabilized and will bring in lots of cash during the next 3 months only small capital raise is needed. Essentially Troy needs a $12m operation + 7m capital raise + 10m Casposo sale = A$29m.

Valuation after CR (529m shares outstanding)
1. Equity + CR amount = A$65m + 7m = A$72m
2. A$95m
3. A$2.5m per 10000 ounces found
4. worthless
5. A$1m per 30000 ounces found
6. A$10m - A$3m (book value) = A$7m
7. A$322m carried losses * 30% = A$97m

I would split this:
1. Assets where no discount is needed (1 + 6) = 79m
2. Assets where value is uncertain and we put a 50% discount on (2) = 47.5m
3. Value of carried losses discounted by 33% = A$65m
4. Exploration with 90% discount on potentials of 0.5m ounces discoveries (12.5m for 3 and 1.7m for 5) = 14.2m
===
A$205.7m or 39cps

So issuing 70m shares at 10cps will be very bad for current shareholders as this is a price way below the true intrinsic value of shares. Even if we value everything that has no fixed value with 0 and measure after the dilutive CR we get to at least 15cps.

But so be it, sometimes you have to play safe and if the market is not giving a higher share price we have no chance to avoid that CR at such a low price.

The wake up call here is that shareholders should be aware what had been at stake at the RIM initiated meeting. It is important to understand all the valuation blocks first.
To me RIM's proposals now make sense. They were prepared to win the fight and they had only bogus proposals for running the mine (renewed focus on exploration). That tells us they were ready to take the company but not to take the mine.

What would Troy look like without Karouni?
1. A$65.3m equity
2. A$10m for 30% of Casposo
3. A$3m negative current book value of Casposo
4. A$124m negative if Karouni is given up (book value of Guyana assets)
5. A$34.5m Karouni liabilities that Troy will get rid of if Karouni is given up
65.3m+10m-3m-124m+34.5m = A$17.2m negative value

The only value Troy would have left would be carried losses:
A$322m + A$124m (Karouni assets book value) - A$34.5m (Karouni liabilities) = A$411.5m

At 30% taxe rate the carried losses would be worth A$123.5m and with the negative value of the rest of Troy still A$106.3m would be left.

A$106.3m / 460m shares = 23cps

RIM's plan probably was to take control of the board first, then do an "emergency" capital raising at 7cps (500m shares) to pay the Investec loan (A$35m). That would have left Troy with a value of A$141.3m and 960m shares issued. 14.7 cps
Not counting the capital RIM needed to buy the 5% stake (sunk costs) they would have invested A$35m and and got 500m shares worth 14.7cps = A$73.5m.

110% return. Not that bad.

Of course carried losses are not easily converted to cash. But who knows what other plan they had with Troy? If their plan was to inject projects from other miners it would make perfect sense and the value of carried losses would not need a discount.

It is very sorry that many shareholders did not vote at all and some even believed RIM had the best interest of all shareholders on their mind. Catastrophe was avoided if only narrowly.

Given the stakes it could be possible RIM will make another attempt to gain control of the board.

And they might even make that bid for shares the current management advised them to do. There is lots of room up into the high teens if they just close Karouni for good and make use of tax credits gained by carried losses while injecting one or two projects of their own into Troy.

Shareholders have to make sure such a bid is rejected firmly as Karouni will stabilize over the next 3 months.
The real value for shareholders will come once the resources from the original PEA are mined. Not all of that will be viable ore (e.g. underground), but large parts of it can be replaced by new sources of ore already. E.g. Spearpoint.

Make up your mind now and be prepared for what might come...