Thursday , 21 November 2024

Exposed! The "Unknown" World of Gold, Silver and Commodity-related Company Warrants (+7K Views)

Lorimer Wilson October 17, 2011 Comments Off on Exposed! The "Unknown" World of Gold, Silver and Commodity-related Company Warrants (+7K Views) 7,772 Views

Warrants have been the best kept ‘secret’ of the investment world until now. After all, when was the last time you read an article on warrants or had your financial advisor broach the subject? Pay attention to the particulars provided in this article, prepare with proper due diligence and enjoy the prospects of future prosperity that a basket of long-term warrants can provide. Words: 1744

So says Lorimer Wilson editor of  www.munKNEE.com (Your Key to Making Money!). Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement.

Wilson goes on to say:

The galaxy of warrants trading on the TSX/TSXV now consists of only 135 stars (i.e. constituents) in total of which only 37 are associated with 33 commodity-related stocks that have sufficient brightness (i.e. 24+ months duration) to warrant (the pun is intended!) the attention of earthly investors. To learn why you should buy the long-term warrants of commodity-related (and particularly gold and silver) companies and exactly how to go about doing so please read this (1) article.

Warrant: A Definition

Before going any further it is important to know that warrants are  securities which gives the holder the right, but not the obligation, to acquire the underlying securities at predetermined (i.e. exercise) prices and within a specified period of time (i.e. term or duration).

The Commodity Companies Warrant Index (CCWI)

The 37 LT tradable warrants (many warrants are offered as “sweeteners” to underwriters/financial institutions and company insiders and, as such, do not trade) of the abovementioned 33 companies (4 companies have 2 warrants each) have been gathered together into an equal dollar-weighted proprietary index called the Commodity Companies Warrant Index (CCWI).

  • The CCWI was up 91% in U.S. dollar terms in 2010.

Most financial writers and advisors are of the mistaken impression that warrants are just associated with penny stocks – the ‘juniors’ – but as the breakout of commodity-related companies with LT warrants by market cap below shows that is not entirely the case:

  • 4 are large-cap companies (i.e. >$2.5B);
  • 1 is mid-cap (i.e. $500M – $2.5B);
  • 2 are small-cap (i.e.  $250 – $500M;
  • 10 are micro-cap (i.e. $100M – $250M);
  • 16 are nano-cap (i.e. <$100M)

Also, because most investors are more interested in precious metals than other commodities another way to look at the asset class is by the commodities produced by these 33 companies as follows:

  • 19 of the companies are gold and silver related;
  • 8 are involved in base metal mining;
  • 5 are in oil and gas operations;
  • 1 is agriculture related

All warrants have life durations and begin to lose value as they approach their respective expiry dates. As such, only warrants with at least 24 months term before expiry are included in this analysis. The breakdown by duration of the 37 warrants is as follows:

  • 2 of 60+ months duration;
  • 11 of 48 – 59 months;
  • 13 of 36 – 47 months;
  • 11 of 24 – 35 months

The Gold and Silver Warrants Index (GSWI)

As a sub-component of the CCWI the LT tradable warrants of the 19 companies primarily involved in gold and silver mining, exploration and royalty stream endeavours have been gathered together into an equal dollar-weighted proprietary index named the Gold and Silver Warrants Index (GSWI).

  • The GSWI was up 2010 of +92% (and +140% in 2009!) in U.S. dollar terms.

This compared very favourably with the:

  • 55% increase in a basket of mid- and small-cap miners as represented by the GDXJ;
  • 33% increase in the HUI and GDX (large/mid cap gold and silver mining company stocks);
  • 30% increase in gold bullion and even the
  • 83% in physical silver.

Market capitalization of the 19 companies with LT warrants is as follows:

  • 4 are large-cap
  • 4 are mid/small-cap
  • 11 are micro/nano-cap in size

Type of activity each company is involved in is as follows:

  • 11 are producers,
  • 6 are explorers (i.e. , juniors),
  • 2 are royalty stream companies of which
  • a) 1 deals exclusively in gold;
  • b) 1 deals in gold and silver plus other commodities.

The breakdown of the months until expiry for each of the 21 warrants is as follows:

  • 2 have 60+ months duration;
  • 6 have 48 – 59 months;
  • 10 have 36 – 47 months;
  • 3 have 24 – 35 months

Index Constituent Companies

The constituents of the GSWI are as follows: Company Name; market capitalization; TSX/TSXV warrant symbol; (U.S. Pink Sheets** symbol); warrant expiry date; warrant CUSIP* Number; web site URL:

(* CUSIP stands for the Committee on Uniform Security Information Procedures of the American Bankers Association which established a format of unique codes for all North American stocks, bonds, puts, calls, warrants, etc. as assigned by Standard and Poor’s. The CUSIP number consists of a combination of 9 characters, both letters and numbers, which act as a sort of DNA for the security uniquely identifying the company or issuer and the type of security. The first 6 characters identify the issuer and are assigned in alphabetical order; the 7th and 8th characters, which can be alphabetical or numerical, identify the type of issue; the last digit is used as a check digit. (The use of such numbers is imperative for non-Canadians when placing orders with a broker to avoid any confusion related to specifically which warrant is being requested to be bought or sold.)

(** Pink Sheets is the registered name for a privately owned company that operates a centralized quotation service that collects and distributes market maker quotations for securities traded in the over-the-counter market. The service is named for the color of the sheets on which the National Quotation Bureau originally distributed bid and ask quotations for OTC securities. In 1999 Pink Sheets introduced its Electronic Quotation Service, which provides real-time quotes for OTC equities and bonds. The .pk behind a stock simply means the stock in question is traded on the pink sheets. It is a 5-alpha symbol ending in ‘F’ for Foreign).

a) Gold and Silver Constituents

  1. Agnico-Eagle; $11B; T.AEM.wt.U; December 2013; 008474140; www.agnico-eagle.com
  2. Augen Gold; $54M; V.GLD.wt; October 2014; 05104R120;www.augengold.ca
  3. Astral Mining; $3.5M; V.AA.wt; October 2014; 046349130; www.astralmining.com
  4. Bridgeport Ventures; $32M; T.BPV.wt; October 2014; 108404112; www.bridgeportventures.net
  5. Brigus Gold; $189M; a) T.BRD.wt; November 2014; 109490110; b) T.BRD.wt.A; November 2014; 109490136; www.brigusgold.com
  6. Crocodile Gold; 24M; T.CRK.wt; March 2016; N/A; www.crocgold.com
  7. Dundee Precious Metals; $623M; T.DPM.wt.A; (DNPMF.pk); November 2015; 265269134; www.dundeeprecious.com
  8. Endeavour Mining; $309M; T.EDV.wt.A; February 2014; G3040R133; www.endeavourminingcapital.com
  9. Franco-Nevada; $3.6B; T.FNV.wt.A; June 2017; 351858139; www.franco-nevada.com
  10. Golden Minerals; $282M; T.AUM.wt; February 2014; 381119122; www.goldenminerals.com
  11. Gran Colombia; $283M; T.GCM.wt; August 2015; 38501D113; www.grancolombiagold.com
  12. Kinross Gold; $12.3B; T.K.wt.D; September 2014; 496902180; www.kinross.com
  13. Lupaka Gold; $39M; T.LPK.wt; June 2014; 550435119; www.lupakagold.com
  14. New Gold; $2.5B; T.NGD.wt.A; (NGDAF.pk); June 2017; 644535122; www.newgoldinc.com
  15. Northquest; $8M; V.NQ.wt; December 2014; 666676119; www.northquest.biz
  16. Primero Mining; $456M; T.P.wt; July 2015; 74164W114; www.primeromining.com
  17. Rio Novo Gold; $156M; T.RN.wt; March 2015; G75700123; www.rnovogold.com
  18. Sandstorm Gold; $187M; a) V.SSL.wt; (SNXXF.pk); April 2014; 80013R115; b) V.SSL.wt.A; (SDXXF.pk); October 2015; 80013R123; www.sandstormgold.com
  19. U.S. Silver; $68M; V.USA.wt; July 2014; 90343P119; www.us-silver.com

Below are the commodity-related companies with LT warrants that are involved in oil and gas operations, agriculture and base metal mining and/or exploration which complete the full complement of constituents in the CCWI according to Company Name; market capitalization; TSX/TSXV warrant symbol; warrant expiry date; warrant CUSIP Number; commodity and web site URL:

b) Oil and Gas Constituents

  1. PetroAmerica Oil; $124M; a) V.PTA.wt; October 2014; 71647B113; b) V.PTA.wt.B; May 2014; 71647B139; www.petroamericaoilcorp.com
  2. Petromanas Energy; $204M; V.PMI.wt; February 2015; 71672A113; www.petromanas.com 
  3. Petro Magagdalena; $239M; V.PMD.wt; February 2016; 716726127; www.petromagdalena.com
  4. Manas Petroleum; $56M; V.MNP.wt; May 2014; 56176Q110; www.manaspete.com
  5. Compton Petroleum; $8.5M; T.CMP.wt.A; August 2014; 204940134; www.comptonpetroleum.com

c) Agricultural Related Constituents

  1. Prima Colombia Hardwood; $66M; V.PCT.wt; September 2015; 74164H117; www.primahardwood.com

d) Base Metals Constituents

  1. Formation Metals; $45M; T.FCO.wt; March 2014; 34637V119; Cobalt; www.formationmetals.com
  2. Lipari Energy; $3.5M; T.LIP.wt; March 2014; 536300114; Coal; www.liparienergy.com 
  3. Mega Uranium; $165M; MGA.wt.B; October 2014; 58516W146; Uranium;   www.megauranium.com
  4. Noront Resources; $213M; V.NOT.wt; December 2014; 65626P135; Nickel; www.norontresources.com 
  5. Oceanic Iron Ore; $77M; a) V.FEO.wt.A; November 2015; 67524Q124 b) V.FEO.wt.B; November 2015; 6752Q116; Iron ore; www.oceanironore.com
  6. Pacific Coal Resources; 19M; V.PAK.wt; March 2016; 694071119; Coal; web site N/A
  7. West African Iron Ore; $13M; V.WAI.wt; March 2016; 95110P119;Iron Ore; westafricanironore.com 
  8. Zasu Metals; $4M; T.ZAZ.wt; December 2013; 989197116; Zinc, Lead; www.zazumetals.com

Which Warrants Should You Invest In?

Now that you know which companies constitute the LT warrant asset class, which commodities they are involved in, when their warrants expire and what their respective symbols and CUSIP numbers, are all you need to start investing in them is to decide on your approach. Warrants perform in relationship to that of their associated stock so their purchase should not be done without considerable research.

a) Given the fact that no warrant ETFs are available to buy you could buy a basket of warrants consisting of an equal number of warrants from every company mentioned above. As an example. if you were to restrict your warrants portfolio to just those of gold and silver companies, and just 100 warrants of each LT offering, it would amount to approximately $8,000 at today’s prices plus commission expenses.

b) You could do your own due diligence of each of the 37 companies and decide which company or companies are to your liking and purchase their associated warrants accordingly.

c) You could restrict your selection of companies early on by:

  • management experience/reputation;
  • industry sector (oil and gas, precious metals, base metals, etc.);
  • specific products (gold, uranium, crude oil, etc.);
  • business emphasis  (producers, developers, explorers or royalty payers);
  • market capitalization (large, mid/small, micro/nano);
  • countries of operation (world-wide, excl. Africa, excl. Venezula, etc.);
  • stock /company fundamentals;
  • technical analysis of stock;
  • expiry date of warrant;
  • price volatility of stock/warrant;
  • degree of liquidity of stock/warrant;
  • trading depth of stock/warrant;
  • currency in which stock/warrant trades

d) You could do b) or c) above and then, and only then if your primary intent is to hopefully be in a position to exercise your warrants and acquire their associated stock at some future date, finally restrict your purchases to those warrants that provide the best value related to their future leverage potential based on specific appreciation of their associated stock and the number of months duration remaining for the warrants under consideration.

Conclusion

Now that the ‘secret’ has been exposed you can’t help but agree that warrants warrant your serious consideration – and now you know which ones to give consideration to and what factors should be taken into consideration before placing an order. To learn exactly how to go about placing an order go here.

Disclosure: Naturally, I own warrants from the above list. With returns like I have outlined above, who wouldn’t! Having said the aforementioned, however, please do your own due diligence or seek the advice of a knowledgeable consultant.

*https://www.munknee.com/2011/10/exposed-the-unknown-world-of-gold-silver-and-commodity-related-company-warrants/

Title and Link to Article Referenced Above:

1. Gold & Silver Company Warrants: Which, When, Why, and How to Buy Them

With all the interest in physical gold, silver and other commodities these days, andthe large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why has no one written about the 91% returns and the 60% leverage generated by the long-term warrants offered by a select few miners and royalty companies in 2010?” The information in this article and the links to a variety of resources will change all that and make you ready and able to reap the benefits from investing in this much misunderstood asset class. Words: 2585

 

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