We discussed the acquisition of Florida Canyon Gold (FCGV.V) and Integra Resources (ITR.V, ITRG) in a report last week, but as the market still appears to be uncertain this deal will actually happen, Florida Canyon Gold is trading at a substantial discount versus the implied offered price.
At the closing bell last Friday, the respective share prices were C$0.55 and C$1.25 respectively, and we know that Florida Canyon shareholders are offered 0.467 shares of Integra per share of FCGV. This means that based on a C$1.25 share price for Integra, the implied value is 0.467 * 1.25 = C$C$0.584 per share of Florida Canyon. But you could also look at it from a different perspective: At C$0.55 for Florida Canyon, you are actually buying Integra Resources at 0.55 / 0.467 = C$1.18, a 5.6% discount. That discount has been fluctuating between 5 and 12% ever since the deal was announced, and it should be seen as an ‘uncertainty discount’. The market apparently still doubts the deal will go ahead, but from a FCGV perspective, the downside is likely limited. Either the deal with Integra goes ahead and an FCGV shareholder ends up with ITR stock at a discount to the current market price. Or a third party emerges and puts a superior offer on the table. Which means that any third party offer would have to be noticeably higher than the C$0.584 the Integra bid currently implies. Which means the downside is relatively limited for FCGV.
This doesn’t mean one has to go out and start selling Integra and buying Florida Canyon. The discount has been all over the place in the past few weeks, and there for sure will be more opportunities on volatile days. But as the deal gets derisked and as Integra can show it has the votes, the discount should disappear.
Disclosure: The author has a long position in Integra Resources (but no position in Florida Canyon Gold yet). Integra is a sponsor of the website. Please read the disclaimer.
