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).
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 = $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.
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.