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The Secret World of Gold and Silver Stock Warrants

Commodities / Gold and Silver 2011 Jul 12, 2011 - 01:38 AM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleI 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.

  1. Agnico-Eagle; $11B; T.AEM.wt.U; December 2013; 008474140; www.agnico-eagle.com
  2. Augen Gold; $54M; V.GLD.wt; October 2014; 05104R120;www.augengold.ca
  3. Astral Mining; $3.5M; V.AA.wt; October 2014; 046349130; www.astralmining.com
  4. Bridgeport Ventures; $32M; T.BPV.wt; October 2014; 108404112; www.bridgeportventures.net
  5. Brigus Gold; $189M; a) T.BRD.wt; November 2014; 109490110; b) T.BRD.wt.A; November 2014; 109490136; www.brigusgold.com
  6. Crocodile Gold; 24M; T.CRK.wt; March 2016; N/A; www.crocgold.com
  7. Dundee Precious Metals; $623M; T.DPM.wt.A; (DNPMF.pk); November 2015; 265269134; www.dundeeprecious.com
  8. ECU Silver; $203M; T.ECU.wt; February 2014; 26830P121; www.ecu.ca
  9. Endeavour Mining; $309M; T.EDV.wt.A; February 2014; G3040R133; www.endeavourminingcapital.com
  10. Franco-Nevada; $3.6B; a) T.FNV.wt.A; June 2017; 351858139; b) T.FNV.wt.B; July 2013; 35185814; www.franco-nevada.com
  11. Gran Colombia; $283M; T.GCM.wt; August 2015; 38501D113; No Web site
  12. 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
  13. New Gold; $2.5B; T.NGD.wt.A; (NGDAF.pk); June 2017; 644535122; www.newgoldinc.com
  14. Northquest; $8M; V.NQ.wt; December 2014; 666676119; www.northquest.biz
  15. Papuan Precious Metals; $24M; V.PAU.wt; July 2013; 69887W110; www.papuanpreciousmetals.com
  16. Primero Mining; $456M; T.P.wt; July 2015; 74164W114; www.primeromining.com
  17. Rio Novo Gold; $156M; T.RN.wt; March 2015; G75700123; www.rnovogold.com
  18. Sandstorm Gold; $187M; a) V.SSL.wt; April 2014; 800132128; b) V.SSL.wt.A; October 2015; 800132136; www.sandstormresources.com
  19. Silver Wheaton; $8.5B; T.SLW.wt.U; (SLVWF.pk); September 2013; 828336149; www.silverwheaton.com
  20. 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 is Editor of www.FinancialArticleSummariesToday.com (F.A.S.T.) and www.MunKnee.com (Money, Monnee, Munknee!) and an economic analyst and financial writer. He is also a frequent contributor to this site and can be reached at editor@munknee.com."

© 2011 Copyright Lorimer Wilson- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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