Description

Atlatsa Resources (listed in Canada and South Africa) is a merger arb trade which should yield between 7.5% and 16% within 3 months. Unfortunate it’s only for small accounts.

MERGER ARB CALCULATION

South Africa

Atlatsa is trading at 93c in South Africa. The plan is to take the minorities private at 100c a share. This implies a return of 7.5%

Canada

Atlatsa trades at 8c in Canada. Using the current CADZAR exchange rate (c$10.72) investors will be taken private at 9.3c a share. This implies a return of 16.5%

BACKGROUND

Atlatsa Resources owns a dormant platinum mine (Bokoni) and an exploration project (Kwanda) in South Africa.

Atlatsa’s major shareholders are Anglo Platinum (22.5%) and Atlatsa Holdings (62%).

TAKE PRIVATE DETAILS

On December 12, 2018 Anglo Platinum offered to buy Kwanda from Atlatsa for $27.5mil.

To avoid expensive listing costs in South Africa and Canada it was decided to buy back the minorities for ZAR100c

CONDITIONS PRECEDENT

The conditions of the transaction include

·         Approval by South African Department of Mineral Resources. (The approval was received on December 12, 2018.)

·         Approval by the exchange control authorities. (I originally thought this was a formality, but, it has taken much longer than I originally thought. I have been in contact with Atlatsa and have been told that the approval is at “an advanced stage” and I don’t expect this to be a problem.)

·         Approval from the Supreme Court of British Columbia. (An administrative formaility)

·         Shareholder vote 30 days after posting the circular. (Given the precarious nature of Atlatsa the vote should be a formality)

Given the “advanced nature” of the exchange control approval I expect the transaction to be completed within two to three months.

RISKS

I am not concerned that this deal will not happen as planned.

Catalyst

Approval of the transaction within 3 months