Current Price: C$0.135
Offer Price: C$0.165
Expected Closing: September 2021
Gold producer Arizona Gold (C$36m market cap) is buying its peer Golden Predator Mining (C$23m market cap) for 1.65 Arizona shares per Golden Predator share. The situation offers 22% gross spread with some borrow available for hedging. Trading volume on both stocks is limited. Approvals are required from shareholders of both companies. Key shareholders of both companies support the transaction. The meetings are scheduled for the 25th of August and the transaction is expected to close shortly after.
IB offers Arizona Gold borrow at 2% for the pink sheet listing (AGAUF). Borrow availability seems to be limited. As the timeline is short, hedging costs will have only a minor impact on the upside.
22% of GPY shareholders already support the transaction, including 9% held by management and remaining by PowerOne Capital, Pat Di Capo, and Canadian billionaire (specializes in precious metals) Eric Sprott. PowerOne and Pat Di Capo acquired at least a large part of their stake in 2016 at C$0.16 per unit, just slightly below the current consideration price. Eric Sprott also bought shares in 2016, but at a much higher price – C$0.73/unit. Out of the 22% supporting GPY shares, only 3.5% will be excluded in the minority vote. It belongs to the CEO, who will receive a lump sum payment related to a change of control (conflict of interest). The remaining 18.5% will be counted towards the minority shareholder vote.
36.2% of Arizona Gold shareholders also support the transaction – 33% belong to the management and the remaining 3% to Eric Sprott.
Overall, I believe that the amount of supporting shares in both Arizona and GPY, including the consent from long-term shareholders and a prominent investor Eric Sprott who owns both stocks, should secure the approvals in the upcoming meetings.
The merger comes as an asset diversification and scale play for Arizona Gold as both firms are nearing the production stage. AZG owns a Copperstone Gold mine in Arizona. All permits are already secured and production is planned for Q1’22. Golden Predator owns the Brewery Gold Mine project in Yukon (Canada), so both projects are not exactly in close geographical proximity. Brewery Gold Mine also has all permits ready and expects to complete a feasibility study in Q3’21, meaning the production stage is underway.
3 thoughts on “Golden Predator Mining (GPY.V) – Merger Arbitrage – 22%”
Something odd here.. The Arizona Gold Toronto shares are unchanged from yesterday at .1050CAD while AGAUF is at .080USD, down about 9% from yesterday. Maybe it’s just the anemic trading volume in USA
side remark: GPY wanted to combine with VIVA Gold and the deal broke due to VIVA shareholders voting against the deal – https://www.specialsituationinvestments.com/2021/04/viva-gold-vau-v-merger-arbitrage-38-upside/
VIVA deal announcement: https://www.goldenpredator.com/_resources/news/20210303.pdf
Shareholders’ approval was received and the merger was expected to close on the 2nd of September. Liquidity and borrow availability were low/limited, however, for those who were able to initiate a position the thesis played out just fine without hedging as well. The idea was closed with +22% in 3 weeks.