Striking Gold
An Imminent Merger Offering a 10%+ Spread
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Today’s setup seems inexplicable at first glance. It goes as follows:
A North-American gold-mining company (Goldgroup Mining Inc., trading as GGA in the Toronto Stock Exchange) is acquiring another North-American gold-mining company (Gold Resource Corporation, trading as GORO in the NYSE).
The acquistion is structured as a merger. GGA is paying GORO shareholders in shares of the new, combined company (0.3610 shares per GORO share), while GGA shareholders get 1 share per GGA share.
So far, so normal.
What’s makes this situation special is this — The merger is expected to go through this Friday (July 17th), and yet GORO’s shares were still trading at a large discount relative to their value in GGA shares at market close at the time of this writing.
To be specific, we should be able to buy GORO at $1.33 today and sell shares of the combined company at $4.06 (the equivalent of $1.47 per GORO share) as soon as Monday.
Since the merger transaction details are out there for anyone to see, one would expect that the market would have closed this valuation gap by now.
What gives?
Merger Arbitrage: Buyer Beware
A merger arbitrage involves the purchase of a stock after a merger announcement has been made.
The idea is to buy the stock for less than what the acquiring company is going to pay, sell the stock of the acquirer, and profit from the difference (spread).
One of my investment heroes, Joel Greenblatt, wrote extensively about merger arbitrage in his phenomenal book You Can Be a Stock Market Genius. The conclusion? Don’t do this at home!
The problem is that all kinds of things can go wrong after a merger is announced:
Acquiring shareholders may vote the deal down.
Acquired shareholders may vote the deal down.
Regulators may block the deal.
Financing could fall through (if debt is involved).
The acquired company may fall into a sinkhole (a real-life example from the book).
Etc.
And if the deal does fall through, the stock of the acquired company will most likely experience a painful drop to the level it traded before the announcement.
To make things worse, there are plenty of professional funds fishing in the merger arbitrage pond, which means the spreads tend to be thin.
As a result, the merger arbitrage is usually not worth the risk.
So how do things look like in this case?
A Golden Opportunity
It looks to me like this deal is extremely likely to go through in a matter of days:
Both sets of shareholders have approved the transaction.
Canadian and Mexican regulators have also approved the transaction.
Financing is not required (the deal is being done in stock).
GGA has already executed the 4-1 reverse stock split they were planning to perform just before the merger, which required approval from the Toronto Stock Exchange (TSX).
To my knowledge, the only pending approval is TSX’s approval for the merger itself. But here is the kicker: I bought my GORO shares late last week and my broker informed me on Monday that “GORO@AMEX (Name: GOLD RESOURCE CORP) is the subject of an announced merger, effective 20260717”.
To be fair, it also told me that it “compiles information relating to corporate actions on a “best effort” basis using information received from third-party sources. Information from these sources may contain errors or omissions, and corporate actions information is subject to change without notice. Clients are urged to exercise their own diligence and verify the information before using it for investing and trading decisions.”
Furthermore, as I was writing this, the following press release came out:
Goldgroup Mining Inc. (TSXV: GGA) (OTCQX: GGAZF) (”Goldgroup” or the “Company”) and Gold Resource Corporation (NYSE American: GORO) (”GRC”) are pleased to announce that subject to obtaining all required approvals, including the approval of the TSX Venture Exchange, and the satisfaction or waiver of all required closing conditions for the previously announced merger (the “Merger”) pursuant to the Arrangement Agreement and Plan of Merger dated January 25, 2026 and amended on May 15, 2026, by and among GRC, Goldgroup, and Goldgroup Merger Sub Inc., a wholly owned subsidiary of Goldgroup, Goldgroup’s common shares are expected to commence trading under the ticker symbol “GORO” on the NYSE American LLC (the “NYSE American”) after the closing of the Merger.
Subject to the above-mentioned approvals and conditions, the Merger is expected to be consummated after the market close on July 17, 2026. As a result of the Merger, Goldgroup’s common shares are expected to commence trading on the NYSE American and GRC’s common stock is expected to be delisted from the NYSE American, in each case prior to the market open on July 20, 2026. Goldgroup’s common shares will no longer be quoted on the OTC Markets upon commencement of trading on the NYSE American.
So the deal may be about to go through.
‘May’ is not the same as ‘will’ though, and there is still the risk that the TSX throws some hurdles in the way of the deal or drags its feet.
Also, because we cannot short GGA shares — at least I wasn’t able to find any to borrow — there is always the risk that the shares of the combined company simply drop to a level below the implied price we paid for them (cost basis) before we can sell them.
Lastly, there are some oddities worth mentioning, like how the stock price chart on GGA’s website hasn’t been updated since February 2026 or how the January 23rd GGA stock price information used in the original merger materials for GORO shareholders happened to be an extreme outlier. I never like to see anything that looks remotely like shenanigans when I make an investment.
Going for Gold
Ultimately, what tips the scales towards investing for me are the incentives of the insiders.
From DEF14A materials, it looks like the deal was ushered by Francisco Javier Reyes de la Campa, a former GGA board member. Mr. Reyes owns 2.4% ($5.2M) of GORO’s stock and doesn’t seem to own any GGA stock, so his interests should be aligned with GORO’s shareholders.
Allen Palmiere, GORO’s CEO, also owns 0.9% ($1.9M) of GORO stock. Mr. Palmiere explicitly declined to renegotiate his own compensation as part of the deal — he told the board he'd serve as the combined company's CEO "and would not seek any modifications to his current compensation arrangements” — so his motivation for pursuing the deal isn’t to trigger a golden parachute.
While I am willing to put capital at risk here, personally I never invest more than 5% of my portfolio in a situation like this. The prospect of a quick profit is compelling, and a portfolio of situations like this should do very well, but something may still go wrong in this individual case.
I’d love to hear your take in the comments. And if you liked this idea, I hope you’ll consider subscribing:
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