Portfolio Update: Amara Mining Opportunity (April 11, 2016)

by FI Fighter on April 11, 2016

in Precious Metals Updates

Last week, I made the announcement that I added 35,000 shares of Perseus Mining (PMNXF), a mid-tier gold producer in West Africa. At the time, I did so because I strongly felt that shares of Perseus were extremely undervalued. With the most recent acquisition of Amara Mining (CLUGF) now nearly complete (Amara shareholder approval of 90% was finalized last Friday), I’m speculating that a future re-rating of the combined entity will be in store in the near future. The “new” company will now have 14 million gold ounces in resources, and 7.4 million gold ounces in reserves, which is a significant number, especially when considering the incredibly low market valuation Perseus is currently receiving (relative to peer group).

Pro-Forma

Anyway, looking back, I made the mistake of purchasing shares of PMNXF directly, because what I should have done, instead, was to purchase shares of CLUGF. When the dust settles, 1 share of CLUGF will be exchanged for 0.68 shares of PMNXF and 0.34 warrants. With the Amara shares, there is not really an arbitrage opportunity (with regards to share price) currently available, as the two tickers trade essentially on par…

CLUGF_PMNXF_chart

CLUGF = $0.239/share
PMNXF = $0.339/share
CLUGF (Perseus Equivalent) = ($0.239/share) / (0.68) = $0.351/share

 

Ok, shares of CLUGF are a little more “pricey”… for a reason.

 

This time around, the arb opportunity that exists is through the warrants that Perseus is making available to existing Amara shareholders.

As stated earlier, 1 share of CLUGF will be exchanged for 0.68 shares of PMNXF and 0.34 warrants.

Transaction

The warrants are good for 3 years, at a cost of A$0.44/share ($0.3341/share).

In a rising gold price environment, you do NOT want to say no to “free” warrants!

Essentially, anyone buying shares of CLUGF today will be able to get a “3 year call option” on an advancing gold price.

 

As such, I liquidated my 35,000 shares of PMNXF this morning, and used the proceeds to buy shares of CLUGF, instead. Further, I cashed out entirely of my First Mining Finance (FFMGF) position (which really blew up today!), selling all 70,000 shares, to buy even more shares of CLUGF. In total, I added 155,800 shares of CLUGF at an all-in cost basis of $0.231/share. When the merger is complete and shares of CLUGF de-listed later this month, I should receive 105,944 shares of PMNXF as replacement. The warrants that come along with the shares should entitle me the right, but not obligation to purchase an additional 52,972 shares of PMNXF at the terms outlined above.

 

What can I say? I really want those warrants!! And I’ve been pestering management at both Perseus Mining and Amara Mining to confirm for certain that I will receive them in a timely fashion, without hiccup, post-merger… I’ve never had the luxury of being able to participate in a private placement before, so up until now, I have no experience or history dealing with warrants… The current situation is somewhat sticky because I’m buying shares on over-the-counter (OTC), while Perseus trades natively on the ASX, and Amara trades natively on the LSE. So, I really don’t know if there will be any “catches” or “gotchas”… I’m still waiting to hear back from management again, but I didn’t want to let this opportunity pass me by, so I made sure to purchase shares today.

 

Hey, I’m just a simple retail guy trying to get in on a good deal. Like always, I also make sure to pass along the opportunity to readers of this blog as well.

 

Here’s how shares of CLUGF and PMNXF have performed so far this year.

CLUGF_PMNXF_chart-2

 

Fight On!

{ 3 comments… read them below or add one }

1 JamesNo Gravatar April 11, 2016 at 9:15 pm

I’m probably wrong… But in rising gold environment how does ffmgf
Work… You notice the big future money trend push in last three days? Yet no
New ffmgf acquisition announcement? Keep an eye on exetur

Reply

2 FI FighterNo Gravatar April 11, 2016 at 9:25 pm

James,

In a rising gold price environment, most gold companies would stand to benefit and First Mining would be no different in the regards that their projects would become increasingly more valuable. That is, the “optionality” card would come into play, as some of the more marginal deposits would become economical.

On the other hand, a rising price environment wouldn’t be good for acquisitions, as any buyer would obviously prefer to buy during times of deep distress… You can’t “steal” bargains, if no one wants to sell at firesale prices anymore… So, a sharp rise in gold price isn’t ideal to conducting a growing business that is predicated on buying up assets for pennies on the dollar, but as First Mining Finance has mentioned before, if gold gets overheated, they might shift focus to base metals, instead…

Anyway, I did notice the Future Money Trends promo which helped push FF.V shares up 22% today. Bottom line, I liked the opportunity with Perseus more at this time, and decided to bet heavily on that. I took my profits from FFMGF and am not looking back now. I closed out my position today.

Perseus is my sleeper pick. You’ve got 14 million ounces M&I now, and once they finalize the Amara acquisition, I believe shares will be re-rated. Yaoure is a terrific project, and even economical at $1,000/oz gold. From a valuation point of view, there are very few (if any) gold producers currently as undervalued as Perseus… Getting the warrants on top of shares is just gravy in my book.

I couldn’t pass up this stellar opportunity… Even without warrants, this is the only gold stock on my radar right now.

Cheers!

Reply

3 Investment HuntingNo Gravatar April 15, 2016 at 7:45 pm

Silly question, but I’ve never received a percentage of stocks and warrants before. How would you act on your warrants? Are they listed on your broker page, like any options you would have sold?

Reply

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