In the gold sector, 'bigger' usually means a higher valuation. In this merger, Alkane is using is more expensive stock (11X earnings) to acquire MND (trading at less than half that valuation) to create a larger, more liquid company with three operating mines. It will have gold production of 160,000 ounces, growing to 180,000 ounces next year. The balance sheet will remain strong. Alkane also has potential from its large Boda-Kaiser copper gold project. The transaction itself makes good business sense, but MND shareholders will disappointed in the 2% premium here (a discount if one looks at the 20-day average). But it is more of a merger than a takeover. We think the outlook for the combined company will remain decent, and the combination should get a higher valuation in the market. MMD directors/holders of 45% of the company have approved the deal. Alkane management will run the new company. With the lack of takeover premium, this leaves the door open for other parties, at least more than it would otherwise. We would HOLD for now, but overall we would be OK holding the combined company. The conference call is Monday and we may get more details from it.
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