Resource World Magazine

30 www.resourceworld.com A U G U S T / S E P T E M B E R 2 0 1 7 T hrough the years many large com- panies have had stock warrants trading, AT&T, Goldcorp, Bank of America, General Motors, Ford Motors, Wheaton Precious Metals (formerly Silver Wheaton) and Agnico-Eagle Mines, among hundreds of others. By definition, a warrant is a security, issued by a company, giving the holder the right, but not the obligation, to acquire the underlying shares, at a specific price and expiring on a specific date in the future. This definition is similar to stock options or LEAPS, (Long-Term Equity Anticipation Securities) except that war- rants are actually issued by a company, whereas options and LEAPS are created/ written by investors. Warrants are traditionally issued in con- nection with a company's private placement or equity offering as additional incentive to get the deal done. Warrants are mostly a matter of common sense and arithmetic, so let's not make this complicated. Private placements versus trading war- rants: Most companies will have stock warrants in their capital structure; how- ever, many of those warrants will not trade as it is the decision of company manage- ment and their financial advisors as to whether the stock warrants will be listed for trading. By all means, if you have the ability to participate in a private placement on a company that you like and there are warrants as part of the offering you should give serious consideration to participating. However, don't overlook the fact that there are many warrants trading in the United States and Canada on interesting compa- nies in all industries and sectors, including the resource sector – my personal favorite. Stock warrants can be issued by com- panies for as little as one year or for five years or more. Obviously, the longer the term of the warrant (time until expiration), the better your chances of great success. However, just because a stock warrant has a five-year life does not mean that you must hold the warrant for five years. With trading warrants, you can buy the war- rants one day and sell them the next day. Leverage: Warrants are all about the upside leverage over the common shares. I describe leverage as follows: The advan- tage that a warrant offers the investor is leverage, that is, a greater gain than would be possible with an equal investment in the common stock. Without this possibly of such leverage the investor would buy the common stock. As a general rule warrants will be selling at a greatly lower price than the common shares, and can be bought for one-third to one-half of the price of the common shares, thus your capital invest- ment is much, much less, saving you money versus buying the common shares. At a minimum, warrants should outper- form common shares by more than two to one. Thus, a gain in the shares of 200% should see a gain of more than 400% in the warrants on those shares. Leverage is best illustrated by real examples; however due to space limitations in this article, I suggest you download for free from my website, The Stock Warrant Handbook which gives many examples of the great performance of stock warrants from the 1950s to pres- ent. However, I will share with you two recent examples in the last nine months, Northern Dynasty WT B, and Bank of America WT B, up 2,486% and 2,376%, respectively. Thus, warrants are attractive to inves- tors because of the potential leverage or magnification of the gain that they offer and the lower capital required over the common shares. Perhaps your most important decision will be to decide which warrants to buy. Thus I ask, 'a warrant on what'? Which companies do you like that have stock war- rants trading? Alternatively, which companies do some of your favorite newsletters like, which have warrants trading? I see many companies being recommended and know that some of them have warrants trading and wonder how these newsletter writers/ analysts can overlook the fact that there are warrants trading on their recommenda- tions? I have no answer to that question, except to suggest that all investors need access to a complete listing of all warrants currently trading. The market trend, ie, bull market, bear STOCK WARRANTS Great leverage in a bull market by Dudley Pierce Baker Stock warrants have literally been available for investors for many decades but are underappreciated and overlooked by most investors and even professionals INVESTMENT

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