CAPS Rating: 2 out of 5


Player Avatar TSIF (99.96) Submitted: 11/17/2011 4:49:48 PM : Outperform Start Price: $7.33 JAGGF Score: -81.65

Jaguar Mining is an arbitrage play with a twist. One, you have to make some assumptions management will do the right thing for shareholders, which is a bit of a stretch. Second you have to have excellent interpretation skills, which I often don't have. Third, you have to step out a little bit in faith.

Jaguar Mining management apparently hid from investors that a buyout offer had been tendered a few weeks ago. Part of the interpretation is at what price. The headlines say $1 Billion in cash which would put Jaguar Mining at north of $11 per share, but here's the you subtract out the debt and what about the warrants. Intial reaction by the market seemed fairly conservative with a share price spike near $8. This made it appear that investors either couldn't figure the math or doubted the reality of the offer. I set my limit about $7.30 and backed off for some research. I was surprised when JAG dropped through my 7.30, activated it and hit $7.13 on the open. Someone was RUNNING and it was too late to figure out why. The stock recovered and has settled around $7.50.

Managment didn't say what their response to the offer was, other than they were looking for other stategic opportunities, meaning higher offers. This implies they would consider a sellout, but not the price range. They could refuse the offer sending JAG back down to $5.50. The question on the whether the offer is "real" seems answered sufficently for me. The China based company putting in the offer is state owned and has solid backing.

Arbitrage play the offer is real, what the offer really means in share price, whether management bungles it, if a higher offer will come. This will be a long 7 day CAPS hold, but I like my chances at $7.30. Maybe little upside, but there should be little downside unless things go really bad.

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