Jayant Bhandari

Cash-Shells Part-1

Merger between Sunward (SWD.T) and NovaCopper (NCQ.T)

I have mostly abstained from predicting the price of gold. For me it is insurance. It does not matter if it falls, for most insurance have no value.

In a way, I think gold is indeed a “barbarous relic.”

Indians buy gold not because they are experts in monetary economics, but because they exist in a barbaric system, where everyone is after his money—and he is after other people’s money. In this pre-rational society, might-is-right is the overriding ethic. In such a system, the concept of dishonesty is only seen as a legal handicap. If you can be dishonest and avoid getting into trouble, it is fair game.

Return on investment is very low, mostly negative, when accounted for risk.

Gold and property are the usual refuge for most Indians.

Indian property prices are horrendously over-valued—rental yield is a fraction of the inflation rate. Indian stock market has recently touched its highest ever. Earnings yield is much lower than the inflation rate.

I have been recommending shorting the Indian market.

People outside India, even libertarians, are enamoured with India’s new PM, Narendra Modi. Who looks like a capitalist to those a continent away is actually a fascist, a fanatic, and a simpleton.

India is not the next China.

As the euphoria related with the new PM diminishes, gold will become very important for Indians. Gold is one of the rare ways Indians can secure their wealth. This will however not necessarily result in a surge in import of gold.

In terms of monetary system, the west has been regressing itself to a barbaric system, and gold will become increasingly important as this regression continues.

But not only in terms of monetary system, the west has increasingly regressed towards a pre-rational culture, as zombies are in full force on the streets asking for more freebies while they elect stupid sociopaths to rule what is an increasingly complex world. This is not sustainable.

Arab Springs will spring around the world. And gold will gain huge importance.

Now about the mining market...

I follow many cash-shells on which I will write in a few weeks. All of them are trading at a discount of about 50% to their cash value. This is truly ironical in a market where the belief is that there is not enough cash for projects to move forward. As projects lack cash, they trade at a discount.

A merger between a cash-shell and a company run by good management would be an ideal marriage. It would not only trigger the value of the cash shell, it would also remove discount for the mining company. This would be a true Win-Win.

One of the first such marriage I see happening is with NovaCopper (NCQ) acquiring Sunward Resources (SWD).

I have been to projects of NovaCopper in Alaska. The remoteness of the projects is an issue and a risk. The CEO is Rick Van Nieuwenhuyse. He is full of energy, and passion to move his company forward. He also has a very good team working with him. With the acquisition of SWD, he will have access to US$20 million in cash.

Assuming the merger goes ahead--which I don’t see a problem with--NCQ will have the resources to spend their budgeted $8 million this summer on in-fill drilling the resources and engineering studies focused on identifying the synergies between the Arctic and Bornite resources. EIS work on the access road should start as well.

You will of course need to make your own assessment on how easy it will be for NCQ to build infrastructure to keep moving their projects forward.

There is for now an arbitrage opportunity in owning SWD and an eventual recognition by the market of the value created by the marriage as defined above.

Each SWD share will be converted to 0.3 share of NCQ. At $0.70 share price of NCQ (which has ironically been sold off, albeit at low volume), the value of SWD would be $0.21.

SWD is trading at $0.165, offering you a 27% arbitrage upside.

Warm regards,

Jayant Bhandari

www.jayantbhandari.com

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