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To
get us started, I have three questions for you.
- Are you
looking for opportunities in the natural resource sector?
- Do you
believe there will be a substantial rally in resource shares?
- Do you see
this rally beginning soon?
If
you have answered yes to the above questions, we are on the same page.
Finding
the method of investing and uncovering the opportunities is your first
challenge.
You
may already have your 'special sources' for discovering these opportunities
but we all know, don't we, that a company's management is of equal
importance as the company's properties.
Incompetent
and uncommitted management will surely screw up a good deal and you must make
sure that the 'good management' has a significant position in the
shares. Verify that management has 'skin in the game', not just options given
to them. Ask yourself the question, if I purchase shares in XYZ Resource will
I own more shares than management? It is quite possible for this to occur
from our findings. We would encourage you to look elsewhere for another
company with management meeting your criteria with a serious financial
commitment in the shares.
Now
that you have found that company or list of companies in which to invest, you
may wish to consider some alternatives as opposed to buying the common
shares.
There
are over 65 resource companies which have LEAPS or options trading on the
Chicago Board of Trade, CBOE. Many of these companies are big names in the
resource sector and thus allow investors the choice of buying these leveraged
opportunities in lieu of the common shares. We have a table of these LEAPS
for the convenience of our subscribers.
In
addition, there are 75 resource companies which have warrants trading.
Not
to overwhelm investors, but these may be some interesting alternatives to
investing in the common shares themselves.
If
you are new to this idea, you may be asking, why?
Why,
would I want to buy a LEAP, option or warrant instead of merely buying the
common shares? The simple answer is for the additional leverage (more
bang for your investment dollars) and less dollars on the line to
control the same amount of shares.
So,
briefly let's define, LEAPS, options and warrants.
We
group LEAPS and options in the same definition as both of these instruments
are 'created' (written) by individuals or investment corporations/funds in
search of the additional income in the form of the premiums received.
LEAPS
and options give the holder the right, but not the obligation, to acquire the
underlying company's shares at a specific price and expiring on a specific
date in the future. LEAPS and options trade on the CBOE, Chicago Board of
Trade, most with a great selection of exercise prices.
Warrants
on the other hand are issued by the underlying company, usually in connection
with a financing or initial public offering. Warrants as well give the
holders the right, but not the obligation to acquire the underlying company's
shares at a specific price and expiring on a specific date. Warrants will
trade similar to the company's common shares with a symbol and may be traded
on the Canadian exchanges as well as in the United States.
Warrants
will usually give the holder a longer life (more time until expiration) with
17 warrants currently with expiration dates of 2015 thru 2017.
Our
point here is that investors have many choices of investing in the resource
sector, not just purchasing common shares.
The
main decision to be made by investors is the company, which company
and why. If the company cannot execute on its business plans, no investment
vehicle will be a winner.
Of
course, a strong rally in the resource sector will be essential as well and
this is exactly what we are anticipating, very soon.
Dudley Baker
PreciousMetalsWarrants
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