New Carolin Gold (LAD.V) – Merger Arbitrage – 20% Upside

Current Price: C$0.08

Offer Price: C$0.096

Upside: 20%

Expected Closing: September 2021

Press release

 

On the 26th of July junior gold miner Talisker Resources (C$75m market cap) announced the acquisition of its peer New Carolin Gold (C$4.5m market cap) at 0.3196 Talisker shares per New Carolin share. The situation offers 20% gross spread with some borrow available for hedging. However, the trading volume on both stocks is very limited. Approval from 2/3rds of LAD shareholders is required. Management owns 3.2%. The meeting will take place in September and the transaction is expected to close shortly after that. Due to the narrow Talisker trading range (C$0.30 - C$0.34 YTD), limited merger dilution, large spread and short timeline it might be possible to play this unhedged.

Borrow availability for hedging is limited. IB shows 4.7k shares at 4% (or 20% if rounded to the nearest dollar) for the Talisker pink sheet listing (TSKFF). As the transaction is expected to close next month hedging costs should not impact the spread by much.

The information circular will be published later this month.

Both Talisker and New Carolin projects are geographically close - located in southern British Columbia, around 250 miles away from each other, so there could be some strategic rationale here. However, as is usual with nano-cap junior mining mergers, the companies and the deal itself are a bit shady. New Carolin Gold is clearly a failed exploration company - it acquired full rights to its The Ladner Gold Project back in 2016 and since then made very little progress, while significantly diluting its shareholders. On a positive note, change of management should incentivize LAD shareholders to approve the merger.

Talisker has two projects with the flagship being the Bralorne Mine Complex. Bralorne used to be one of the longest producing mines in British Columbia but was closed in 1971 due to subdued gold prices. Talisker is now trying to revive the project. They acquired it in Dec'19 and have been engaged in exploratory drilling since then. No plans for PEA have been announced yet. Talisker seems to have attracted some interest from the larger miners/royalty players including Osisko (US$2.3bn, owns 6%), and New Gold (US$1bn). New Gold has acquired a 15% stake in Talisker in April earlier this year, paying around C$0.37 per flow-through share (vs C$0.30/share current price).

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