The advantage to having a blog like this is that you can track when and where your posts are getting attention. There has been a recent rise in interest on our post titled The Two Best Stocks In Canada Right Now and the update blog last July. We haven't made a post since then, and it has been great timing as the small cap market has been an absolute disaster since then, with one of our two picks in that blog being a rare exception. We are up to 984 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel as well as follow our Small Caps, Big Gains blog where we put up our Canadian picks. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.
The two stocks in question are Sparton Resources Inc. (SPNRF) (SRI.V) and Petroteq Energy Inc. (PQEFF) (PQE.V). Sparton has been relatively quiet, being around $0.07 today and $0.09 back in July on the OTC. But PQEFF has been an absolute winner. Despite it being halted from trading in Canada, PQEFF has nearly tripled since July from $0.135 to $0.38 and has traded above our initial $0.40 US target. That being said, we continue to hold our shares and intend to pursue the existing tender offer from Viston United Swiss AG . The offer of CAD $0.74 translates to approximately $0.59, which is around a 55% upside from Friday's close. We recommend to anyone and everyone reading this to strongly consider purchasing PQEFF shares at any price they can get below $0.59 and immediately tendering them by the February 7th deadline (or sooner depending on the broker) for this payout from Viston, essentially equating to an arbitrage opportunity.
We think that this is a done deal and that the payout is extremely likely to happen and represents an arbitrage trade. But we can understand someone new to the stock that this might seem suspicious and too good to be true to be an arbitrage trade of over 50% in two weeks. You can read our previous blogs that gives a bit more of a detailed background on the deal, but we are not in the business of convincing people. Here are some key resources to doing research and asking other shareholders for advice:
https://www.petroteqoffer.com/ - The website Viston set up to officially reach out to shareholders about the deal.
Petroteq SEC Filings - has further details about the tender offer in multiple filings
Kingsdale Advisors - the Information Agent and Depositary in connection with the Offer. They can be contacted within North America toll-free at 1-866-581-1024, outside North America at 1-416-867-2272 or by e-mail at contactus@kingsdaleadvisors.com.
Petroteq Reddit group, Stocktwits and CEO.ca - message boards of shareholders sharing information about the deal.
Consult all of these resources to ensure that this deal is real. The major caveat remaining in our opinion is that Viston must receive more than 50% of the shares in the tender offer or they may walk away. It's our opinion that they will likely extend it if they are close, as they have put a lot of effort into getting Petroteq to-date. But if it falls through, the stock price would likely drop. That's why it's in everyone's interest to tender their shares. The latest reported share count was 646 million and there could be up to close to 800 million shares upon conversion of all dilutive securities. So for the deal to go through, there needs to be a minimum range of 323 million to 400 million shares that are tendered.
If you are a Canadian that wants to buy PQEFF shares, you have to call in your broker. That's fine. If you are planning on buying shares, you should do so then immediately tender them on the same call. It's in our best interest to make sure that as many shares as possible are tendered. So we are not some altruistic charity telling you about this great opportunity out of the kindness of our hearts. The more people who buy and tender, the more people who take advantage of the arbitrage. The more people who take advantage of the arbitrage, the more likely the minimum tender condition is met and it goes from "essentially arbitrage" with minimal risk to complete arbitrage with no risk.
Next up is Sparton Resources. It owns an 89.8% stake in VanSpar Mining which in turn owns 9.8% of VRB Energy, a renewable energy storage company in China. The net result is that SRI owns 8.8% of VRB. VRB Energy is Chaired by Robert Friedland, who is also the founder and Executive Co-Chairman of Ivanhoe Mines Ltd. (IVPAF) (IVN.TO) and is the Chairman and President of Ivanhoe Capital Corporation (IVAN). So he has tremendous global capital markets experience and is one of the leaders in financing energy transition projects.
Read our previous blogs about why we think Sparton makes such a great buy. While PQEFF offers "near" arbitrage profits of 50%, we think Sparton offers speculative upside of 500% or more. Once we get our big payout on PQEFF, we plan to use some of that money to buy more Sparton. Make of that what you will but keep an eye on the stock price and volume in mid-February.
Disclosure: We are long PQEFF on the OTC and SRI through the TSX Venture Exchange.
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