With a tsunami of interest in the future prospects
of gold and silver mining companies (and their stock prices as a result) I am
publishing an updated version of my one-of-a-kind proprietary index of
commodity-related companies with long-term warrants (CCWI) and its
sub-category of just gold and silver companies with long-term warrants
(GSWI). This article gives you some insights into the ‘secret
world’ of warrants and slices and dices the make-up of both indices
identifying the constituents of each for your edification.
The
“wee world of warrants” is so limited that its constituents have
traded under the radar of almost all investors. Indeed, in past articles I
have made reference to this sector as the “secret” world of
warrants.
As
of the close of business on November 30, 2011:
- there were 151
warrants listed on TSX/TSXV (98 and 53 respectively)
- 105 of those
151 warrants (i.e. 70%) are associated with commodity-related stocks,
excluding funds and merchant banks
- 38 of those
105 warrants have a duration of 24+ months duration before expiry, i.e.
long-term (LT), which is considered the minimum investment term
- those 38 LT
warrants are associated with 34 different companies (4 companies have
two warrants each)
- 20 of those 34
companies are involved in the mining, exploration or royalty aspect of
the business
- 14 of the 34
companies are involved in base metal, oil and gas and agricultural
business pursuits.
Warrants: A Definition
A
warrants is a security that gives the holder the right, but not the
obligation, to acquire the underlying (associated) security at a
predetermined (i.e. exercise or strike) price and within a specified period
of time (i.e. term or duration).
The Commodity Companies Warrant Index (CCWI)
The
38 LT warrants of the abovementioned 34 companies are all included in a
proprietary equal dollar-weighted Commodity Companies Warrant Index (CCWI)
which I have been maintaining, primarily for personal use, over the past 6
years.
Surprisingly
to most financial writers and financial advisors/planners not all warrants
are associated with penny stocks – the ‘juniors’ –
although they do account for 85% of the total as the breakout by market
capitalization shows below:
- 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);
- 17 are nano-cap (i.e. <$100M)
In
addition, while the majority of warrants are associated with companies
involved in some aspect of precious metals activity (58%), other
commodity-related companies also have associated warrants as shown below:
- 20 of the
companies are gold and silver related (22 warrants);
- 8 are involved
in base metal mining (9 warrants);
- 5 are in oil
and gas operations (6 warrants);
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 38
warrants is as follows:
- 2 of 60+
months duration;
- 11 of 48
– 59 months duration;
- 14 of 36
– 47 months duration;
- 11 of 24
– 35 months duration
The Gold and Silver Warrants Index (GSWI)
As
a sub-component of the CCWI the LT tradable warrants of the 20 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).
Market
capitalization of the 20 companies with LT warrants is as follows:
- 12 are micro/nano-cap in size
Type
of activity each company is involved in is as follows:
- 7 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 22 warrants is as
follows:
- 2 have 60+
months duration;
Index Constituent Companies
The
constituents of the GSWI sub-component and the entire CCWI are as follows
with the large cap companies underlined for easy identification:
a)
Gold and Silver Warrants Index (GSWI) Constituents
- Agnico-Eagle (warrant
expires in December)
- Armistice
Resources
- Astral Mining
- Bridgeport
Ventures
- Brigus Gold (2)
- Crocodile Gold
- Dundee
Precious Metals
- Endeavour
Mining
- Franco-Nevada
- Golden
Minerals
- Gran Colombia
- Kinross Gold
- Lupaka Gold
- New Gold
- Northquest
- Primero Mining
- Rio Novo Gold
- Sandstorm Gold
(2)
- U.S. Silver
- Vista Gold
Below
are the 14 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:
b)
Oil and Gas Constituents
- Compton
Petroleum
- Manas Petroleum
- PetroAmerica Oil (2)
- Petromanas Energy
- Petro Magagdalena Energy
c)
Agricultural Related Constituents
- Prima Colombia
Hardwood
d)
Base Metals Constituents
- Formation
Metals
- Lipari Energy
- Mega Uranium
- Noront Resources
- Oceanic Iron
Ore (2)
- Pacific Coal
Resources
- West African
Iron Ore
- Zasu Metals
Which
Warrants Should You Invest In?
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. For 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 34 companies and decide
which company or companies are to your liking and purchase their associated
warrants accordingly. (Read Gold & Silver Warrants: What are They?
Why Own Them? How are They Bought & Sold? to
learn exactly how to go about placing orders to buy and sell warrants –
and much more.)
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. Venezuela, 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
Conclusion
Now you some insights into the ‘secret
world’ of warrants and those very few companies with LT warrants that
make up the constituents of the two indices of that asset class, the CCWI and
GSWI. To keep informed of changes on a weekly basis subscribe here or come back here to read my
year-end report on new additions/deletions to, and the annual performance of,
the two indices.
Please feel free to share the contents of this
article with your financial advisor. It will be a revelation to him/her and
prove to be invaluable as the commodity bull, particularly in gold and
silver, unfolds in the years ahead.
Lorimer Wilson (follow
via FACEBOOK
and/or TWITTER ) is
editor of www.munKNEE.com (Your Key to Making
Money!) and www.FinancialArticleSummariesToday.com (A
site for sore eyes and inquisitive minds) and publisher of a daily FREE Financial Intelligence Report which
can be subscribed to here.
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