This is another update to our post titled The Two Best Stocks In Canada Right Now and the update blog last July. The two stocks in question are Sparton Resources Inc. (SPNRF) (SRI.V) and Petroteq Energy Inc. (PQEFF) (PQE.V). Sparton has been relatively quiet during that time 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 $0.39 and has traded above our initial $0.40 US target. We are up to 988 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.
This is the last call for Petroteq. Even though it hit our previous target, we are holding onto all of our shares with the intent to pursue the existing tender offer from Viston United Swiss AG . The offer of CAD $0.74 translates to approximately $0.58, which is around a 49% upside from today's close. We recommend to anyone and everyone reading this to strongly consider purchasing PQEFF shares at any price they can get below $0.58 and immediately tendering them by the February 28th deadline (or sooner depending on the broker) for this payout from Viston, essentially equating to an arbitrage opportunity. This deal was initially set to expire on February 7th, but was extended for three weeks to cover some regulatory processes and likely give more time for last minute holders to decide what to do.
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 about 50% in less than 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 795 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 397.5 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). He has tremendous global capital markets experience and is one of the leaders in financing energy transition projects. There are rumblings that VRB will be taken public soon, therefore greatly increasing and easily valuing SRI's 8.8% stake in the company. VRB Energy has a presence as the Winter Olympic games as China is powering the Olympics 100% with renewable energy.
As an illustration, let's guess that VRB publicly lists with a $1 billion valuation and that SRI's stake gets diluted to 5% as an IPO usually comes with dilution. That would calculate to $50 million in value going to SRI for its VRB stake, more than three times higher than SRI's current market cap. We think that VRB could end up going public at much more than a billion dollar valuation, but only time will tell.
In addition to its ownership stake in VRB Energy, Sparton has two gold properties currently under exploration. With the current economic and geo-political situation being how it is, gold could get hot and these properties would represent another reason why SRI could run soon. The lead property is the Bruell Gold Project which currently has 5000 meter drill program run and financed by the option partner Eldorado Gold.
Disclosure: We are long PQEFF on the OTC and SRI through the TSX Venture Exchange.
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