Description

Ketch Resources Trust: KER-U in Canada C$10.83; KERFF in US. US$9.64

This is a necessarily brief write-up for a fleeting market opportunity.

Ketch Resources agreed to be bought by Advantage Energy Income trust for .565 share of AVN-U (Canada)/AAV (US). This appears to be a great buy for AVN; it’s accretive to AVN and decretive to KER. A lot of KER shareholders do not want to be AVN shareholders and thus there has been a steady supply of KER shares in the market. Advantage stock is unavailable for borrow and short, both in the US and Canada, and thus there are no Arbs in there to keep the KER from getting too low. With KER at C$10.83 and AVN at C$20.70, one can buy KER for 87cts Canadian/77cts US under.

Despite some disgruntled KER shareholders, my sources say this deal is done and it will be overwhelmingly approved……THIS FRIDAY (Jun23rd). Thus, a US investor can buy AAV (the US listing) for 77cts under its current trading price. You should get your shares shortly after the deal is approved, and also will get .565 of the AVN divvie, or 14cts Canadian (12.6cts US) on June28th.

Natural gas appears to have finally bottomed, and we have been cautious buyers of NG weighted stocks, including AVN. This is an extraordinary opportunity to either get a terrific annualized ROR if you just buy this for the flip, or, a great way to catch the turn in NG at a nice discount to market.

Catalyst

Jun28th close of the merger.