I read article after article about
investing in physical gold and silver, gold and silver ETFs and gold and
silver mining company stocks but nary a one (other than those written by me)
on the long-term warrants associated with a few of those companies. That is
unfortunate because those who are in the know, and have taken advantage of
the significant leverage warrants offer over any other precious metals
investment alternatives, have done extremely well over the past 2 years - and
they are positioned to achieve even greater returns on their dollars deployed
as the gold bull continues its run. Let me take this opportunity to enlighten
you on this unknown rewarding world of warrants.
The galaxy of warrants trading on the
Toronto Stock Exchange and the Toronto Venture Stock Exchange currently
consists of only 167 stars (i.e. constituents) in total of which only
40 are associated with 34 commodity-related stocks that have sufficient
brightness (i.e. 24+ months duration) to warrant (the pun is intended!) the
attention of earthly investors. They make up the entirety of my proprietary
Commodity Company Warrants Index (CCWI) and you can read more about that
index by visiting munKNEE.com (It's all about MONEY!). Of those 40 LT
warrants only 24 are associated with just 20 gold and silver companies and
they make up the entirety of my select, and proprietary, Gold and Silver
Warrants Index (GSWI). No wonder no one knows anything about this type of
investment when it is restricted to only 14% of all long-term warrants
currently trading and just 20 companies in total!
What Are Warrants?
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 Gold and Silver Warrants Index (GSWI)
The 20 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 24 warrants of the 20
companies (4 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 24 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);
- 10
(42%) 36 - 47 months
- 6
(25%) 24 - 35 months
2. Number of
Companies With Warrants by Market Capitalization
Most financial writers and advisors are of the mistaken impression that
warrants are just associated with penny stocks - the 'juniors' - but that is
not entirely the case as outlined below:
- 5
(25%) large-cap (Kinross Gold; Agnico-Eagle; Franco-Nevada; Silver
Wheaton; New Gold)
- 4 (20%)
mid/small-cap
- 11
(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:
- 17
(85%) are miners
- 3
(15%) 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 is greater 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
- 83%
in physical silver.
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;
b) T.FNV.wt.B; July 2013; 35185814;
www.franco-nevada.com
- Gran
Colombia; $283M; T.GCM.wt;
August 2015; 38501D113; No Web site
- 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
- Papuan
Precious Metals; $24M; V.PAU.wt; July
2013; 69887W110; www.papuanpreciousmetals.com
- 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;
April 2014; 800132128; b) V.SSL.wt.A;
October 2015; 800132136; www.sandstormresources.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, 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 more or
less (more in an up-leg, less in a down-leg) 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. If, for example,
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 20 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);
- countries of operation
(world-wide, excl. Africa, excl. Venezuela, etc.);
- stock
/company fundamentals;
- technical
analysis of stock;
- length
of duration left on 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 which I refer to as the
"leverage-time factor".
To learn exactly how to go about the
above please visit my site and read the article aptly titled: "Buying Gold and Silver Company Warrants is Easy
& Profitable: Here's How (and Why!)"
Conclusion
Now that the 'secret' is out I'm sure
you can't help but agree that warrants warrant your serious consideration.
Now that you know which ones to give consideration to and what factors should
be taken into consideration before placing an order, what are you waiting
for?
Lorimer Wilson
MunKnee.com
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