The Hunt For Warrants

The Hunt For Warrants

In the world of risk capital, there’s nothing better than a warrant to offer free upside on potential success.

I’ve done very well for myself taking part in private placements, with a warrant kicker, at the start of a resource cycle.  I’m not sure if we’re at the start of a new resource cycle but it’s sure starting to feel like it – especially for gold.

In reviewing my portfolio, it’s dawned on me that I don’t have enough warrant exposure.  I’m not entirely sure why that is?  It might be that with the passing of time, I now value, somewhat subconsciously, liquidity over potential reward.  To get a warrant, unless it’s a prospectus offering (very rare), means you’re buying stock with a 4-month hold – not ideal.

But if you catch a resource cycle, collecting warrants can prove very profitable.  It also allows for the redeployment of capital into new up-and-coming stories while keeping a free-ride in current plays.

I’m as greedy as it gets – I’m in this game to make money.  So I’m always looking for the story that presents the most upside.  But when it comes to participating in warrant financings, I take a slightly different approach.  Since I participate in warrant financings to leverage my exposure to as many companies as possible in a resource cycle upswing, I want to make sure I’m taking stakes in companies where, at the end of the 4-month hold period, when the company faces a barrage of free-trading stock, I’m still in the green on my initial speculation.  So I need to find good companies.  And I need to make sure I get in cheap.  If I feel there’s any downside to the financing price, I won’t take part – no matter how nice the warrant kicker.

With that in mind, I’ve just committed to participating in 3 warrant financings.  One financing includes a half warrant and the other two come with a full warrant.  I’ll discuss my participation rationale for each company when their financings close.

Philip O'Neill
Philip O'Neill
poneill@mp1capital.com