Virtually nothing is
being written these days on the few long-term warrants associated with
gold and silver mining companies. I suppose that is to be expected given that
there are only 22 such warrants and they are associated with only 19
companies in total. That is unfortunate because those who are in the
know can take advantage of the significant leverage
warrants generate in a bull market over investing in physical gold
and silver, precious metals company stocks and mutual/exchange traded funds.
What am I talking about – and which warrants am I referring to?
Let me explain.
(Please note that full
attribution must be included in any article reposting with a link to the
article source* below to avoid copyright infringement.)
Only 167 warrants were
trading on the Toronto Stock Exchange ($TSX) and the Toronto Venture Stock
Exchange ($CDNX) in total as of the end of July, 2011. Of those 167
only 22 (13%) are of the long term variety (+24 months to expiry) and
associated with 19 gold and silver companies and, as such, constituents of my
proprietary Gold and Silver Warrants Index (GSWI).
What Are Warrants?
Warrants are securities
which gives the holder the right, but not the obligation, to acquire the
underlying associated securities at predetermined (i.e. exercise) prices and
within a specified period of time (i.e. term or duration).
The Gold and Silver Warrants Index (GSWI)
The 19 companies in
the equal dollar-weighted GSWI are primarily involved in gold and
silver mining, exploration and royalty stream endeavours and
consist of the following particulars:
1. Number of Warrants by
Months of Duration
Since all warrants have
life durations, and begin to lose value as they approach their respective
expiry dates, only the 22 warrants of the 19 companies (3 companies have
2 warrants each) which have at least 24 months term before expiry
are included in this analysis. The breakdown by duration of the 22
warrants is as follows:
- 3 (12%) 60+ months (Franco-Nevada wt.A, New Gold wt. A, Crocodile
Gold wt.) ;
- 5 (21%) 48 – 59 months (Dundee
Precious Metals wt. A, Gran Columbia wt., Primero
Mining wt., Rio Novo Gold wt., Sandstorm Gold wt.A);
2. Number of Companies
with Warrants by Market Capitalization
Most financial writers
and advisors are of the mistaken impression that warrants are associated with
just penny stocks – the ‘juniors’ – but, as the
breakout of the 19 gold and silver companies with LT warrants by market
cap shows below, that is not entirely the case:
- 5 (25%)
large-cap (Kinross Gold; Agnico-Eagle; Franco-Nevada; Silver Wheaton;
New Gold)
- 10 (55%)micro/nano-cap in size
3. Type of Activity by
Company with Warrants
Type of activity each
company is involved in is as follows:
- 3 (16%) are royalty stream companies of
which
- a) 1 deals exclusively in gold
(Sandstorm Gold);
- b) 1 deals exclusively in silver
(Silver Wheaton) and
- c) 1 deals in gold and silver plus
other commodities (Franco-Nevada).
Comparing the Performance of the GSWI with Other Gold &
Silver Alternatives
The GSWI was
up +92% in 2010 (and +140% in 2009!) in U.S. dollar terms which was
more than 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
The GSWI has not fared as
well – to date – in 2011 but given the optimism expressed in many
articles high hopes are anticipated before the year is out for the stocks of
gold and silver mining companies. The associated warrants of such companies
have historically outperformed the stock of the company in an up-leg by
approx. 70% on average (+74.8% in 2010) but, conversely, have
underperformed the associated stock by roughly 60% in a
down-leg as exemplified by the YTD performance of -36% for the
GSWI vs. only -14.5% for its associated stocks. Incidentally, with the
exclusion of the LT warrant and stock of Agnico-Eagle, which are each down
53% YTD, the GSWI is down -26% and its associated stocks down -6.3%
which is right in line with the HUI/GDX.
As one can see warrants
are quite volatile compared to their associated stock but if one truly
believes in the future performance of precious metals equities then warrants
are the place to be and now is the time to get positioned. For interest sake,
the performance of large/mid-cap gold and silver company stocks as
represented by the HUI/GDX is -5.2/7.5% YTD, that of the mid/small-cap miners
as represented by the GDXJ is -9.6% YTD and Rob McEwen’s index of
non-producers (the McEwen Junior Gold Index) is -11.9% YTD. Incidentally, the
aforementioned performances of the various indices shows that, YTD, the
larger capitalized the mining companies are the better their performances
have been. For details on the differences between the various indices please
review this (1) article.
The GSWI Constituent Company Specifics
The constituents of
the GSWI are listed below with the following information presented 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).
- Agnico-Eagle; $11B; T.AEM.wt.U; December 2013; 008474140;
www.agnico-eagle.com
- Augen Gold; $54M; V.GLD.wt; October 2014; 05104R120;www.augengold.ca
- Astral Mining; $3.5M; V.AA.wt; October 2014; 046349130;
www.astralmining.com
- Bridgeport Ventures; $32M; T.BPV.wt;
October 2014; 108404112; www.bridgeportventures.net
- Brigus Gold; $189M; a) T.BRD.wt; November 2014; 109490110;
b) T.BRD.wt.A; November 2014; 109490136;
www.brigusgold.com
- Crocodile Gold; 24M; T.CRK.wt; March 2016; N/A;
www.crocgold.com
- Dundee Precious Metals; $623M; T.DPM.wt.A;
(DNPMF.pk); November 2015; 265269134; www.dundeeprecious.com
- ECU Silver; $203M; T.ECU.wt; February 2014; 26830P121;
www.ecu.ca
- Endeavour Mining; $309M; T.EDV.wt.A; February 2014; G3040R133;
www.endeavourminingcapital.com
- Franco-Nevada; $3.6B; a) T.FNV.wt.A; June 2017; 351858139;
www.franco-nevada.com
- Gran Colombia; $283M; T.GCM.wt; August 2015; 38501D113;
www.grancolombiagold.com
- Kinross Gold; $12.3B; a) T.K.wt.C; (KNRSF.pk);
September 2013; 496902172; b) T.K.wt.D;
September 2014; 496902180; www.kinross.com
- New Gold; $2.5B; T.NGD.wt.A; (NGDAF.pk); June
2017; 644535122; www.newgoldinc.com
- Northquest; $8M; V.NQ.wt;
December 2014; 666676119; www.northquest.biz
- Primero Mining; $456M; T.P.wt; July 2015; 74164W114;
www.primeromining.com
- Rio Novo Gold; $156M; T.RN.wt; March 2015; G75700123;
www.rnovogold.com
- Sandstorm Gold; $187M; a) V.SSL.wt; (SNXXF.pk); April
2014; 80013R115; b) V.SSL.wt.A;
(SDXXK.pk); October 2015; 80013R123; www.sandstormgold.com
- Silver Wheaton; $8.5B; T.SLW.wt.U; (SLVWF.pk);
September 2013; 828336149; www.silverwheaton.com
- U.S. Silver; $68M; V.USA.wt; July 2014; 90343P119;
www.us-silver.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.
A purchase of just 100 warrants of each LT offering would amount to
approximately $6,000 at today’s prices, plus commission expenses.
b) You could do your
own due diligence of each of the 19 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;
- specific products (gold or silver);
- business emphasis (producers,
developers, explorers or royalty streamers);
- market capitalization (large, mid/small,
micro/nano);
- geographic location (world-wide, excl. Africa,
excl. Columbia, etc.);
- stock /company fundamentals;
- technical analysis of stock;
- expiry date of warrant (minimum of 1.5 years
duration, 2 years, 5 years, etc.);
- price volatility of stock/warrant;
- degree of liquidity of stock/warrant;
- trading depth of stock/warrant;
- currency in which stock/warrant trades (US
or Canadian dollar)
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 (this option is generally not available to U.S.
residents), 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.
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 (2) article.
Conclusion
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.
*Original Source
Article Titles and Links
Referenced Above:
1.
Which Index is the Best to Use: the HUI,
XAU or the GDX?
2.
Buying Gold & Silver Company Warrants
is Easy & Profitable – Here’s How (and Why!)
Lorimer Wilson
MunKnee.com
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