It appears that Marco Polo may have been the first junior mining letter writer. He wrote about "The Legend of 'Zipangu,' the Land of Gold" in his book, The Travels of Marco Polo. He said, "People on the Island of Zipangu (Japan) have tremendous quantities of gold. The King's palace is roofed with pure gold, and his floors are paved in gold two fingers thick." It was partially this belief that led Christopher Columbus on his voyages to the New World in search of gold in the belief he was on the way to the Orient.
What he didn't say that is of most importance to us as investors is that until recently foreign mining companies were not allowed to mine or explore for gold in Japan. Now they can and that may lead to giant opportunities for investors. While Canadian, Australian and American mining companies may not have Japan on their radar, actually Japan was active in gold mining until World War II caused mining to be shut down. But even today, the highest-grade gold mine in the world is located in Japan called the Hishikari Gold Mine owned by Sumitomo with a head grade of 40-g/t gold. The ore is so rich that it is hand sorted on an assembly line much like that of sorting out green tomatoes.
John Proust of Southern Arc Minerals Inc. (SA:TSX.V; SOACF:OTCQX) filed for a number of concessions in Japan over the last three years. As CEO.CA described it, he did it in "stealth mode." Proust made a deal with Frank Giustra and Gordon Keep to spin Southern Arc's applications into one of their shells and changed the name to Japan Gold Corp. (JG:TSX.V).
The company started trading on the 19th of September and hit $0.88 on the first day. Since then insiders have been unloading and the shares have sunk to $0.63. With the exception of Sumitomo and their Hishikari Mine, by and large Japan hasn't had the advantage of modern exploration technology. As a first mover, Japan Gold is cashed up and well positioned to take advantage of John Proust's foresight.
Japan, of course, is located on the Pacific Rim of Fire. Like Indonesia, the Philippines and Papua New Guinea, Japan is seismically active with hot springs all over the islands. These hot springs in ancient times were the source of fluid movement that created the high-grade gold deposits common to the area.
As part of the transaction, Japan Gold was required to do a private placement to raise $5 million. The shell company issued to Southern Arc some 15,088,116 shares for full ownership of the Southern Arc Japan subsidiary.
Japan Gold has filed 80 mineral prospecting license applications over eight mining districts. The combined area under application is 27,153 hectares over the eight project areas.
At present, the value of the projects under application by Japan Gold is a total unknown. They may get approval for all 80 properties applied for or they may get none. While Japan has never been explored using the latest techniques of mining exploration it would be impossible today to even guess how successful Japan Gold might be. The applications will have to be approved and exploration started before investors will be able to judge the success or lack of success of the company.
Japan Gold has serious money behind the company in the form of Frank Giustra and Gordon Keep. They will be certain that the company makes it on to the radarscope of investors through serious promotion. They have mastered the fine art of buying cheap and selling dear.
There is however a slam-dunk investment available to those who understand arbitrage. Southern Arc owns 23,750,00 million shares of Japan Gold worth a total of $14,962,500 as of Friday's close or over 1.5 shares of JG per SA share. Japan Gold was priced at $0.63 on Friday.
In addition they own 2,475,000 shares of Osisko Mining Inc. (OSK:TSX) worth $7,548,750 as of last Friday when Osisko Mining shares were selling for $3.05. So Southern Arc owns a total of $22,511,250 worth of stock in two companies and all of their projects in Indonesia that should be worth something.
But they have a market cap of only $11,014,325. Their stock closed on Friday at $0.73 but they had a value of shares in JG and OSK of $1.49 on the same day. In other words, SA is selling at over a 50% discount to their net asset value. I can see Southern Arc selling at a slight 10–15% discount to NAV but a 50% haircut is absurd. If you someone shorts Japan Gold and buys Southern Arc, they can count on that discount reverting to the mean with little or no risk. After all, owning one share of SA is also owning 1.5 shares of Japan Gold. Some big investor is going to do that soon. It's too easy.
Japan is literally that last frontier of mining on earth today. It has a long history of gold mining and I feel very confident that given the right projects and good management with strong technical backup, the country is going to reward someone. Japan Gold has feet on the ground and applications in progress and we should be seeing activity in the next few months.
Japan Gold is an advertiser. Southern Arc and Osisko are not advertisers. I am biased. I do own shares in Southern Arc. Do your own due diligence.
Southern Arc Minerals
SA-V $0.73 (Sep 30, 2016)
SOACF-OTC 15.1 million shares
Southern Arc website
Japan Gold Corp.
JG-V $0.63 (Sep 30, 2016)
SKYRD-OTC 55.4 million shares
Japan Gold website
Osisko Mining Inc.
OSK-T $3.05 (Sep 30, 2016)
OBFNF-OTC 143.1 million shares
Osisko website
Bob and Barb Moriarty brought 321gold.com to the Internet almost 14 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.
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Disclosure:
1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Southern Arc Minerals Inc. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. Japan Gold Corp. is an advertiser of 321 Gold. I determined which companies would be included in this article based on my research and understanding of the sector.
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