22 Feb 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.