Warrants: Are they Worth it?
O3 Mining, etc.
I am often asked if I am participating in a certain private placement. The usual story is of a placement being done at a 20% discount to the share price, with a long-term, “free” warrant. My usual response is if I should give my hard-earned money to the management that ignites the greed of outsiders by screwing current shareholders. What is the guarantee that such management will not screw shareholders again? I also ask my contacts how many times they have benefited from the “free” warrants. Usually, I draw a blank stare. Alas, failure of the past greed to make people money gets forgotten, and they keep falling for the next seduction.
Do not “invest” based on greed. Invest for value.
Invest only for what you objectively see as the value in the projects, using conservative commodity prices. There is never a reason to invest because you feel greedy thinking that the management is screwing its current shareholders and transferring their upside to you. And respect management who do not offer warrants—they are much more likely to make money for you.
Apart from the greed associated with warrants that harms the industry and makes it under-perform, there is another major irrationality that afflicts the mining investment community. By exchanging soundbites in an echo-chamber, many “investors” come to have a very strong view about the great future of a certain commodity. Ironically, commodity traders hedge their positions in full, focusing only on linking buyers with the suppliers.
Investing in mining should be based only on the value of the company using the lower of the spot and futures prices. Here is a discussion I recently had with Scot Tibballs on uranium:
Linked is a more detailed article I wrote on the subject of uranium.
- O3 Mining (OIII; C$2.96) recently came into existence, effectively as a spin-off from Osisko Mining. Alexandria Minerals, which I wrote about earlier, also merged with OIII, making a decent arbitrage profit. OIII did a financing at C$3.88 earlier. Based on my discounted cash-flow, I get a 100% upside in owning OIII.
- Maritime Resources (MAE; C$0.09) is a company that has failed to go up despite that several other similar companies have done well. My guess is this is because of a lack of liquidity. I see a 50% upside based on my discounted cash-flow.
Associate: Rajni Bala
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