The world of warrants is the undiscovered constellation in the universe of securities. Long term (LT) warrants shone brightly in 2009 - up 242% in U. S. dollar terms - and were up a further 91% in U.S. dollar terms in 2010. That's correct: 242% in 2009 followed up with a further 91% in 2010! The warrant world consists of only 135 stars (i.e. constituents) of which only 32 are associated with 29 commodity-related stocks that have sufficient brightness (i.e. 24+ months duration) to warrant (the pun is intended!) the attention of earthly investors.
Warrants have been the best kept 'secret' of the investment world (when was the last time you read an article on warrants or had your financial advisor broach the subject?) until now so pay attention to the particulars provided below, prepare with proper due diligence and enjoy the prospects of future prosperity.
Warrant: A Definition
Before going any further it is important to know that a warrant is a security which gives the holder the right, but not the obligation, to acquire the underlying security at a predetermined (i.e. exercise) price and within a specified period of time (i.e. term or duration).
The Commodity Company Warrants Index (CCWI)
The 32 LT tradable warrants of the abovementioned 29 companies (3 companies have 2 warrants each) have been gathered together into an equal dollar-weighted index called the Commodity Company Warrants Index (CCWI).
The CCWI was up 242% in U.S. dollar terms in 2009 and a further 91% in 2010!
Most financial writers and advisors are of the mistaken impression that warrants are just associated with penny stocks - the 'juniors' - but as the breakout of commodity-related companies with LT warrants by market cap below shows that is not entirely the case:
- 5 (17%) are large-cap companies (i.e. >$2.5B);
- 3 (10%) are mid-cap (i.e. $500M - $2.5B);
- 5 (17%) are small-cap (i.e. $250 - $500M); $500M); - 9 (31%) are micro-cap (i.e. $100M - $250M); - 7 (24%) are nano-cap (i.e. <$100M)
Also, because most investors are more interested in precious metals than other commodities, another way to look at the asset class is by the commodity produced as follows:
- 22 (76%) of the companies are gold and silver related;
- 4 (14%) are involved in base metal mining;
- 2 (7%) are in oil and gas operations;
- 1 (3%) is agricultural related
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 32 warrants is as follows:
- 2 (6%) 60+ months
- 6 (19%) 48 - 59 months
- 16 (50%) 36 - 47 months
- 8 (25%) 24 - 35 months
The Gold and Silver Warrants Index (GSWI)
As a sub-component of the CCWI, the LT tradable warrants of the 22 companies primarily involved in gold and silver mining, exploration and royalty stream endeavours, have been gathered together into an equal dollar-weighted index named the Gold and Silver Warrants Index (GSWI) consisting of 25 warrants.
The GSWI was up 140% in U.S. dollar terms in 2009 and was up a further 92% in 2010.
The performance of the GSWI compared very favourably with 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.
Market capitalization of the 22 companies with LT warrants is as follows:
- 5 (23%) large-cap;
- 5 (23%) mid/small-cap;
- 12 (55%) micro/nano-cap in size
Type of activity each company is involved in is as follows:
- 18 (81%) are miners
- 4 (19%) are royalty stream companies of which
a) 1 deals exclusively in gold;
b) 2 deal exclusively in silver and
c) 1 deals in gold and silver plus other commodities.
The breakdown of the months until expiry for each of the 25 warrants is as follows:
- 2 (8%) 60+ months
- 5 (20%) 48 - 59 months
- 12 (48%) 36 - 47 months
- 6 (24%) 24 - 35 months
Index Constituent Companies
The constituents of the GSWI are listed below according to Company Name; market capitalization; TSX/TSXV warrant symbol; warrant expiry date; warrant CUSIP* Number and 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.)
a) Gold and Silver Constituents
1. Agnico-Eagle; $10.6B; T.AEM.wt.U; December 2013; 008474140; www.agnico-eagle.com
2. Augen Gold; $53.8; 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; Oct. 2014; 108404112; www.bridgeportventures.net
5. Brigus Gold; $189.0M; www.brigusgold.com;
a) T.BRD.wt; November 2014; 109490110;
b) T.BRD.wt.A; November 2014; 109490136
6. Claude Resources; $170.4M; T.CRJ.wt; May 2013; 182873141; www.clauderesources.com
7. Dundee Prec. Metals; $624M; T.DPM.wt.A; Nov. 2015; 265269134; www.dundeeprecious.com
8. ECU Silver; $202.8M; T.ECU.wt; February 2014; 26830P121; www.ecu.ca
9. Endeavour Mining; $309.2M; T.EDV.wt.A; February 2014; G3040R133; www.endeavourminingcapital.com
10. Franco-Nevada; $3.6B; T.FNV.wt.A; June 2017; 351858139; Gold, Silver, Oil and Gas Royalty; www.franco-nevada.com
11. Gold Wheaton; $562.5M; T.GLW.wt; July 2013; 38075N113; $562.5M; Gold Royalty; www.goldwheaton.com
12. Gran Colombia; $283.0M; V.GCM.wt; August 2015; 38501D113; No Web site
13. Kinross Gold; $12.3B; www.kinross.com;
a) T.K.wt.C; September 2013; 496902172;
b) T.K.wt.D; September 2014; 496902180
14. Minera Andes; $249.6M; T.MAI.wt; August 2014; 601910184; www.minandes.com
15. New Gold; $2.5B; T.NGD.wt.A; June 2017; 644535122; www.newgoldinc.com
16. Northquest; $7.9M; V.NQ.wt; December 2014; 666676119; www.northquest.biz
17. Papuan Precious Metals; $24.2M; V.PAU.wt; July 2013; 69887W110; www.papuanpreciousmetals.com
18. Primero Mining; $455.7M; T.P.wt; July 2015; 74164W114; www.primeromining.com
19. Rio Novo Gold; $156.1M; T.RN.wt; March 2015; G75700123; www.rnovogold.com
20. Sandstorm Resources; $186.9M; www.sandstormresources.com; Silver Royalty
a) V.SSL.wt; April 2014; 800132128;
b) V.SSL.wt.A; October 2015; 800132136
21. Silver Wheaton; $8.5B; T.SLW.wt.U; September 2013; 828336149; Silver Royalty; www.silverwheaton.com
22. U.S. Silver; $68.1M; V.USA.wt; July 2014; 90343P119; www.us-silver.com
Below are the 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 according to Company Name; market capitalization; TSX/TSXV warrant symbol; warrant expiry date; warrant CUSIP Number; commodity and web site URL:
b) Oil and Gas Constituents
1. PetroAmerica Oil; $124.0M; V.PTA.wt; October 2014; 71647B113; www.petroamericaoilcorp.com
2. Petromanas Energy; $204.0M; V.PMI.wt; February 2015; 71672A113; www.petromanas.com
c) Agricultural Related Constituents
3. Feronia Inc.; $44.7M; V.FRN.wt; September 2013; 31527R109; Farmland www.feronia.com
d) Base Metals Constituents
4. Breakwater Resources; $275.9M; T.BWR.wt.A; April 2014; 106902166; Zinc; www.breakwater.ca
5. Mega Uranium; $164.8M; MGA.wt.B; October 2014; 58516W146; Uranium; www.megauranium.com
6. Noront Resources; $212.5M; V.NOT.wt; December 2014; 65626P135; Nickel; www.norontresources.com
7. Stonegate Agricom; T.ST; $125.5M; T.ST.wt; April 2013; 86181P112; Phosphate; www.stonegateagricom.com
Which Warrants Should You Invest In?
Now that you know which companies constitute the LT warrant asset class, which commodity they are involved in, 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 in relationship to that of their associated stock so their purchase should not be done without considerable research on the companies' anticipated prospects.
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 on the 29 commodity-related companies and decide which company or companies are to your liking and purchase their associated warrants accordingly.
c) You could restrict your due diligence to only those companies who are in the phase of operations of interest (i.e. producers, developers, explorers or royalty streamers) or operating in the commodity or commodities of interest and purchase the warrants of those companies you think have the best future prospects. A visit to each company's web site would provide such information.
d) You could do b) or c) above and then, and only then, further 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.
Conclusion
Now that the 'secret' is out you can't help but agree that warrants warrant your serious consideration. Will they once again this year outperform their associated stock and the commodity involved? Time will tell but what does it matter if you don't own any. Instead of focusing on the mantra "Got gold?" I think "Got LT warrants?" would be much more meaningful.
Please note: Constituent companies of the CCWI and GSWI are deleted if, and when, their warrants no longer have a duration period of at least 24 months. In addition, companies are added if they issue a warrant with at least 24 months duration. All performance analyses are done on a strictly comparative basis. Also note that the above list of constituent companies will be kept updated on a monthly basis in this article as found in the 'Warrants/LEAPS/Options' section under the 'Investing' category.
Disclosure: Naturally, I own a variety of warrants from the above list. With returns like I have outlined above, who wouldn't. Having said the aforementioned, however, please do your own due diligence or seek the advice of a knowledgeable consultant.
