Musings on Investing

China: Why is it so Successful?

Plateau Energy

Recently, I had a discussion with two Marxists about the reasons underpinning the successes of China. Their opinion is that China is prosperous because of its socialist nature. In contrast, I see China’s success as rooted in capitalism. You might find the first half an hour of this long discussion useful:

On Investments

Plateau Energy (PLU; C$0.88) is being acquired by American Lithium (LI; C$3.90). The following is how I go about calculating the arbitrage in this deal.

Each share of PLU will convert to 0.29 share and 0.145 warrant of LI. Each full-warrant will have an expiry of three years and an exercise price of C$3.

At the current LI price, each warrant is worth C$0.90, were you to exercise them today. If I use 10% as the interest rate to calculate the benefit of a 36-month delayed payment to exercise the warrant, the value would be C$0.75 in today’s terms.

Value of each warrant: C$0.90 + C$0.75 => C$1.65.

Value of PLU = 0.29 * C$3.90 + 0.145 * C$1.65 => C$1.37

There is a 56% arbitrage upside in owning PLU.

I do not follow either of the two companies and am generally hesitant to buy something whose underpinning value I am not reasonably sure of. And LI has gone up too much too quickly, which means a higher risk of it coming back down. The volume of trade has, however, been excellent. So, I am happy to own some PLU while I work out a Pro-forma merged company valuation.

Finally, in my last musings, I wrote about how I planned to make money from the crazy, irrational Reddit group that is going after hedge funds that have short-sold GME.

My trade so far has been excellent. GME has now fallen to around US$55. I continue to believe that it should fall to its original price of US$25 or lower. I stay short GME—and have added to my short position, making sure that I have a very comfortable margin not to be caught up in a short-squeeze.

Jayant Bhandari

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