UrbanGold Minerals (UGM.V) – Merger Arbitrage – 15% Upside

Current Price: C$0.28

Offer Price C$0.32

Upside: 15%

Expected Closing: end of May’21



Yet another consolidation in the junior gold mining industry.

On the 23rd of March, it was announced that UrbanGold Minerals (C$17m market cap) will be acquired by its peer Troilus (C$142m market cap) Gold for 0.3004 TLG shares for each UGM share. At current prices there is a 15% spread, however, Troilus borrow fee is quite high (31% annual), which reduces the potential upside to around 10% assuming the transaction will close in two months. Conditions include approval by 2/3rds UGM shareholders and a majority of disinterested UGM shareholders. TLG owns 9.7% of UGM shares, while directors hold another 6.6%. It is not clear yet if directors will be considered as an “interested party”.

Downside to pre-announcement price levels stands at around 13% from both legs of the trade. However, these are micro/nano-cap junior miners (pre-revenue operations) with significant share price volatility, so the actual downside might be different and is difficult to predict.


Positive aspects of this transaction

  • Strategic rationale is clear. Troilus is consolidating its land position in Froter-Evans Greenstone Belt. UGM land is located very close to Troilus (see chart below) and although the target company’s assets are underexplored so far, the whole area has a history of mining activity and proven gold reserves. Troilus already holds 9.7% stake in UGm and should be well acquainted with its assets and the area itself. The acquisition will add 35k hectares land package on top of Troilus’ current 107k hectare land in the area. In essence, TLG is expanding its property by 33%, while diluting common shareholders by only 12%. Moreover, last year, UGM’s initial exploration showed positive results.


  • Troilus (the buyer) appears to have relatively credible management. The company is run by the former Sulliden Gold team, which sold Sulliden for C$300m in 2014 to Rio Alto. Their efforts with the current project have also been quite successful so far. Troilus mine produced around 2Moz gold from 1996 to 2010 and was closed as being completely exploited. However, the current team has acquired the project in 2017, resumed drilling, and eventually managed to uncover significant gold resources. Their PEA results (see more below) show potential for TLG to become the fifth largest gold producer in Canada.
  • Shareholder support is quite likely. UGM share price is close to all-time high – only one short-term spike in mid-2020 due to the positive initial exploration results and surge in the gold price valued the company higher. UGM operations are still in very early stages – since incorporation in 2017 only surface exploration has been carried out. Troilus management has been significantly more efficient and in virtually the same amount of time (assets were acquired in 2017) has already completed PEA (preliminary economic assessment) and started the pre-feasibility study. UGM has no major shareholders that could pose a large threat to the voting and overall, at current prices, I think that most shareholders might be happy to switch management teams while retaining the exposure through Trilus shares in more advanced projects in the same area.



  • Borrow fee increase, which could potentially eliminate the whole upside here. Although there is some margin of safety here as assuming the transaction will close in two months, the annual fee would have triple and reach 90%+ before you would start losing money.
  • Extended timeline till closure. Both companies expect closing by the end of May, which seems reasonable for such a small merger. However, shareholder’s meeting date is not announced yet and any extension in the timeline could reduce the potential upside due to borrow fee increase.
  • Some risk of merger termination still remains.



The company holds key land positions in the Troilus-Frotet area in Quebec, Canada.


ugm shareholders



Troilus is a gold and copper mine located northeast of the prolific gold-producing Val-d’Or district in Quebec.

ugm 1

The company has completed PEA in August 2020 and is working towards a pre-feasibility study in 2021.

PEA summary:

ugm troilus

ugm troilus 2




3 thoughts on “UrbanGold Minerals (UGM.V) – Merger Arbitrage – 15% Upside”

  1. “The delisting of the UrbanGold Shares from the TSX-V is expected to occur at the close of business on or about May 21, 2021.”


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