Patience Is The KeyI agree with the poster who said that patience is key. The reality that I think more experienced arbitrageurs understand is that doing merger arbitrage in non-Western locales just tends to take more time. The bureaucracies of the Western nations are bad enough; now look at the bureaucracy of a country like South Africa. Things like changing ministers or dealing with BEE restrictions slow the process down, but do not imply that the deal will not go through.
Human psychology wants instant gratification. We want that immediate dopamine hit to the brain just like a gambling addict or a drug addict. But the reality is that investing often does not work like that. We can't seek instant gratification. Instead, we as investors should be making reasoned assumptions around the probability of whether the deal will go through or not, what the value is in each case, and making the investment if we believe that we have a positive expected value at current levels after taking all factors into account.
We also need to make sure when assigning probabilities that we do not swing too far to one extreme or the other depending on the news of the day. We as investors must be moderate in our thought process...things tend to take longer than our brains would like, and we must simply sit back, wait, allow our thesis to play out.
Is there a possibility that the deal doesn't go through? Absolutely. Do I think the market is assigning the right probability to the deal going through? Absolutely not. Look at the incentives of all parties involved...the South Africans are seeing riots in their mining towns due to the economic downturn. Their bureaucrats may be lazy and slow, but even they know that they need deals like ELR done to get their citizens working again. The Chinese want access to resources and they want them cheaply. At gross book value, these assets cost almost USD $900M to create, and the Chinese are getting to buy them for USD $225M. Sure, the PV-10 at current platinum levels (~USD$950/oz) is not great, but then look at Jim Tisch's $5M Test...when underwriting commodity assets, one needs to focus on the normalized value of the assets, not what the value looks like at the commodity's price lows. And the reality is that on normalized values, the Chinese are buying these assets for a song. They don't even have to spend billions of dollars on man-made islands to get access to these assets.