Another Reason Why Kentor Gold May Want to Consolidate

The other day I posted my thoughts on the proposed consolidation by Kentor Gold. Last night I was giving this issue some more consideration and came up with another reason why Kentor Gold may be interested in exploring this avenue.

It is to do with something I have spoken in the past and I still believe it is largely being overlooked by everyone (me included) as Andash, Burnakura and Jervois are all more exciting, but we must not forget about the Geo-thermal Project.

When I spoke to Simon (and if you read past announcements) this project will be spun out into a separate listed entity. At this stage Kentor Gold don't know whether they will retain a free carried stake (say 20%) or place shares will existing holders (say 1 share for every 10 you own post consolidation).

If they are considering the second option (i.e. placing shares with existing holders and then raising the rest via the IPO) then it is impossible to do this when the SP is at 10 cents or even 20 cents. Why? Because then the "Kentor Energy” shares would have to be placed to existing holders at 1 or 2 cents each (or the maths would be "odd"  and you would get 1 share for every 100 you own, which would create all kinds of issues with rounding up or rounding down).

A much more logical approach would be to consolidate the share price to $1 and spin out "Kentor Energy" in mid to late 2012 when the share price is hopefully at or around $2. Kentor Gold could then place 1 share for every 10 held to existing shareholders at 20 cents. The rest of the money would then be raised via an IPO.

After consolidation we will have 106,209,295 shares on issue. Even if we only get 1 "Kentor Energy" share for every "Kentor Gold" share this would equate to 10,620,929 "Kentor Energy" shares being placed with existing holders (total value of $2,124,185m @ 20c).

Kentor Energy can then raise another $10-$20m via IPO and we are done and dusted.

*** After reviewing the above figures 1 for 10 may be a bit low as it could leave us with only 10% of the Energy Company. In my opinion Kentor Gold will be aiming to give existing holders approximately 20% upside potential in this new company so the placement could easily be as low as 1 in 5 depending on the share price at the time.

*** Simon also mentioned at the Gold Symposium that news on the Geo-thermal project could drop at any time, so in my opinion it will be something that the company has to consider within the next 3 to 6 months.

As always please do your own research and consult a licenced financial above. The points I make above are pure speculation only.