The Warrant Report
Current Risks of Owning Warrants
- Interesting Day in the Markets
- Current Risks of Owning Warrants
As we mentioned earlier this afternoon, this was an awesome day in the markets, so to recap again for you:
Gold had been down over $30 to $1533 but closed at $1562, down only $6, and the HUI was down as low as 392.34 but closed virtually at the high of the day at 421.78, up 16.73.
We have a long way to go but this is very encouraging as gold was beginning to look like a major break to the downside and then reversed. We really need to get back up above the $1600 level ASAP. But we thinking we have definitely seen the worst.
Current Risk of Owning Warrants:
We all should know the reason why we buy warrants.
To capture the upside leverage of the warrants outperforming the common shares. To achieve a 2 to 1 leverage, that is our goals of owning warrants.
With the current market situation, many of the companies with warrants trading have fallen greatly in price and thus well below the exercise price. Normally this would not bother me, but I would like to share one reason to be cautious.
With the share prices of juniors so depressed this is an idea environment for a buyout or takeover of some of these companies. We did/nor do we buy warrants expecting a takeover.
On a takeover, the warrants would still live on as warrants of the acquiring company, but, the terms of the warrants are adjusted to reflect the terms of the merger/buyout. Most of the time, the warrants are not near as attractive at this point.
The warrants which I own as part of my Core Holdings are not a concern for me as I believe the companies have a vision for their companies and it not to be subject to a buyout. Some of the companies in the warrant database may not be as savvy and may be willing buyout candidates. Sometimes, management gets tired and wants out as well.
I thought of the situation recently in New York while having dinner with the President of one company in my portfolio. Even though they do not have warrants trading we were discussing mergers/buyouts.
This silver company is aggressive looking for an acquisition and my comment was this is a wonderful with the depressed share prices and my words were, ‘this would be a great time to rape a company with a low buyout price’. And this is great if you are the acquiring company, but if you are the company being taken out, well, it will not be a happy situation if the company decides to sell out at a low price and if they did have warrants trading we would probably have some decisions to make.
These comments are not in any way meant to scare investors from buying warrants, just use some common sense and if your company becomes a target we will know and give you our opinion at that time as to what to do.
Great opportunities do not come without some risk and it is how we prepare for and manage that risk.
We are here to help you with these decisions.
Live BNN Interview with Andrew Bell and Dudley Baker
We attended the New York Hard Assets Conference earlier in the week and had a chance to visit with Lenic Rodriguez, President of Aurcana as well as Robert Archer, President of Great Panther Silver. This are just two of our highly rated companies and both individuals are great guys and motivated to make their companies a success with a large share position as well.
I will be attending the Grand Opening of Aurcana’s Shafter Silver Mine in Texas on June 1st and look forward to reporting back to you on this great accomplishment for Aurcana. (See BNN below and my comments on TV)
We had the opportunity to be interviewed live on BNN, Business News Network in Canada, with Andrew Bell on the Commodity Show on the 15th.
We were asked to speak only about warrants.
Give us, 6 minutes and take a look,
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We would also remind you of Dudley’s involvement and spokesman for The Greedy Guru. This service has a totally different approach and focusing on
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Something to Remember:
If you like a resource company and they have long-term warrants trading you owe it to yourself to explore this potential opportunity. Not all warrants will meet your test of length of time until expiry or the potential leverage thereon, but this is where we have done the work for you in our comprehensive warrant database. Not familiar with warrants, visit our Learning Center.
If you are already fully invested or substantially so, don’t be depressed. We are near the end and should be seeing higher prices soon. Hang in there – you will be rewarded.
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Dudley Pierce Baker – Owner/Editor – Guadalajara/Ajijic, Mexico
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