Arbitrage on the Ark, Lands in Japan

Southern Arc Minerals (SA.V) has a plan to spin-out its asset holdings to shareholders. See: Southern Arc Proposes to Unlock Shareholder Value Through Return of Capital Transaction

Southern Arc Minerals Inc. (TSXV: SA) ("Southern Arc" or the "Company") announces it is proposing to carry out a return of capital transaction (the "Transaction"). Pursuant to the Transaction, the Company proposes to distribute securities (currently owned by the Company) of Japan Gold Corp., Tethyan Resource Corp., and Rise Gold Corp., to the shareholders of the Company on a pro-rata basis.

This plan is not yet approved.

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.

Beyond the potential arbitrage here, the charts look good. First up is SA.V. It has been basing, but clearly the market isn't valuing the sum of its parts. If the market were to fully value the parts today, it would complete the base. Unfortunately, the spinout will create an entirely new situation for this company. Nothing can be projected for SA.

Rise Gold has been basing. It needs to clear CAD$1.10 for a breakout. I'm not too keen on this stock, I owned it before and sold it.

Next up is Tethyan. It will become Adriatic Metals. There's not enough history on this stock for a chart read, but I like their assets. It's a keeper for me.

Finally, there is Japan Gold. The chart on this is gorgeous. Moreover, a breakout will put SA's warrants in the money.

In sum, the SA spinouts look like undervalued shares that are posied for breakouts.

An additional bit of info that may be relevant: John Proust is the CEO of Southern Arc Minerals and Japan Gold. My sense from watching the video below is that Japan Gold has been moving too slowly on Japan.

Irving Resources (IRV.CA) is also in Japan, and its stock is already a 30-bagger that looks similar (chartwise) to Kirkland Lake and Wesdome, two that I own. Irving focused on moving their projects forward, while Japan Gold accumulated assets but hasn't done much to develop them.

Japan Gold has deals with Barrick and Newmont to evaluate their assets over the next two years. If the spinout deal means Proust will focus on moving Japan Gold forward, this could be what it takes to break JG out of its base.

This is an arbitrage play, but most of the assets themselves look undervalued or readying for a technical breakout. In addition to getting more assets than you paid for, you get assets with great charts and underlying value, with the cherry on top being a potential catalyst that triggers a rerating of Japan Gold.

I have bought shares of SA based on my research. I'm not sure how brokers will handle the spinout of assets. I use Interactive Brokers and can trade shares on multiple exchanges. There are pink sheet shares of these companies in the U.S., but you may want to check with your broker.