The merger between Paramount and Coeur was completed last Friday without any issues. When I entered the trade I paid next to nothing for the spin-off that would occur simultaneously with the merger, and today I sold the shares of the SpinCo for $1.70/share. When measured against the value of the PZG leg the merger arb returned 8.1% in just a month. That’s an awesome result! At the same time, I could be penny wise and pound foolish by purely focusing on the merger arb, and not on the spin-off itself.
Spin-offs are known to outperform because people often sell them indiscriminately, and that’s exactly what I have done… SpinCo appears to be cheap at $1.70/share since it’s trading barely above its cash balance of $10 million while it also owns an undeveloped gold project that could be worth hundreds of millions if gold prices go up. So why sell? I have two reasons:
- I know next to nothing about mining
- I think exploration stage mining companies as a group are usually a terrible investment
Investing in something that you don’t know anything about doesn’t seem smart and if I didn’t already own SpinCo I wouldn’t have bought it, so I think it makes sense to sell if you get some shares as a by-product from another trade. It’s just that selling the position feels like a different decision that not buying it, although logically it’s equivalent.
No position in PZG and/or CDE anymore