Update on Southern Arc Arbitrage

I posted about this at teh end of August: Arbitrage on the Ark, Lands in Japan

I looked at the value of these shares last week, and by my count it was 96 cents per share, or a 37 percent discount to the share price on Monday. This does not include warrants on Japan Gold and values the rump SA assets at zero. I used SA's fully diluted share count for my calculations. Tethyan is being acquired by Adriatic Metals (ADT.AX), I valued the SA holding at 23 cents per share last week. Rise Gold (RYES and RISE.CA) is worth 12 cents. The rest is Japan Gold, which I estimate at 61 cents per share.

Southern Arc announced it will not spin out the warrants on Japan Gold because of tax considerations for U.S. investors. This doesn't change the value of the spin-outs as I calculated them. They probably will spin those shares out later if/when they move into the money.

Based on current share prices of the pieces, I value the spinout at 96 cents. I'm assuming the rump value of SA is zero for the purpose of this exercise. SA currently trades at 88 cents per share. That's not a large enough margin of safety for me, but I am still holding a position in SA bought at lower prices.

Precious Metals Charts

A sampling, not exhaustive. Own a few of these, and many more not listed below.

The Precious

Nice pop from the gold miners this week

Here's a chart of the three gold mining stocks I purchased on May 6. One way up, one up in line with the Market Vectors Junior Gold Miners (GDXJ), and one way down. Luckily, I'm overweight the big winner and underweight the big loser. I don't know whether this rally can last, it really will depend on whether gold prices can hold up. But I think it's a good hedge in case my bearish stance is wrong, since I believe the miners and gold will do very well if we have inflation rather than deflation. Thus, with a smaller allocation of capital I can achieve decent returns if my larger bearish positions are wrong.

Bye-bye Anadarko

It's down 10%. I know I'm probably getting chased out of it, but I'm cutting my losses.

Gold and gold miners are holding up very well this morning. Sticking with NSU, SA and EVOGF for now.

As of this moment, the major indexes are about 5% to 6% away from Thursday's plunge lows.

Buying some gold miners

In one account, my only position for several months has been ProShares UltraShort Euro (EUO). I picked up Anadarko Petroleum (APC) last week. I expected the broader market sell-off, but thought APC sold off too much on the news of the leak in the Gulf. I think they're a great company, but if it breaks down, I'd sell and wait to buy it back at a lower price, especially since the miners may become much more attractive soon. At the moment I'm down about 4% in APC.

Today, I just moved back into Nevsun (NSU), a gold miner that was profitable for me from late 2008 to summer 2009. I sold out and it went up 100% after that. I also picked up some Seabridge Gold (SA) and possibly some Evolving Gold (EVOGF; EVG.V) if my limit order goes through.

Gold continues to be strong and I believe that gold miners can benefit if gold rises or stocks rise. Plus, if the euro reverses, gold and stocks may both rally. I think one can do fine holding an ETF here, such as Market Vectors Gold Miners (GDX) or Market Vectors Junior Gold Miners (GDXJ).